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Case: Consider a situation in which two countries, Home and Foreign, can produce a good that is subject to external economies of scale. Assume that firms in both countries face the same average costs curve (AC), given by
AC = m+(r/(s+Q))
where m=3, r=20, s=2 and Q indicates quantity.
The demand curves are given by, respectively:
Home: Q= b-P
Foreign Q = b*-P
where b=20 and b*=40 . Q indicates quantity and P indicates price.
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