Below are several questions about the Monopolistic Competition Model in the context of a trade liberalization between the US and Mexico. Some information about the widget industry in the US and Mexico: Both countries share the same technological characteristics with consultants from Bain & Company reporting that the fixed cost associated with producing a widget are 75,000$, the variable costs associated with producing a widget are 5$.Bain also reports demand characteristics of the US and Mexico market: The demand elasticity parameter "b" was estimated to be 1/300. Total widget demand in the US was estimated to be 16,000 units and total widget demand in Mexico was estimated to be 9,000 units.
Suppose the US market is segmented from the Mexico market (i. e. there is no trade between markets), how many firms operate in the US market? How many firms operate in Mexico? At what prices do they sell their products? How does the US market compare to the Mexican market?