See the numerical example from the lecture slides. Suppose the two countries were to integrate their automobile market with a third country and a fourth country, which have an annual market for 2 million and 1 million automobiles, respectively. Find the number of firms, the output per firm, and the price per automobile in the new integrated market after trade.

Solution

Explanation:

First, we need to calculate the number of firms in the new integrated market. We use the formula where N is the number of firms, M is the total market size, D is the demand per firm, and n is the number of countries. In this case, M is the sum of the market sizes of all four countries, and D is the demand per firm in the original two-country market.

Explanation:

Next, we calculate the output per firm, Q. This is simply the total market size, M, divided by the number of firms, N.

Explanation:

Finally, we calculate the price per automobile, P. This is equal to the marginal cost, MC, plus the demand per firm, D, divided by the number of firms, N.

The number of firms, output per firm, and price per automobile in the new integrated market after trade will depend on the specific values of the market sizes, demand per firm, and marginal cost. These can be calculated using the formulas provided.