Business, 09.07.2020 04:01 miya257916

Starting from the long-run equilibrium without trade in the monopolistic competition model, consider what happens when the Home country begins trading with two other identical countries. Because the countries are all the same, the number of consumers in the world is three times larger than in a single country, and the number of firms in the world is three times larger than in a single country. Required:

a. Compared with the no-trade equilibrium, how much does industry demand D increase? How much does the number of firms (or product varieties) increase? Therefore, does the demand curve D/NA still apply after the opening of trade? Explain why or why not.

b. Illustrate the long-run equilibrium with trade and compare it with the long-run equilibrium when Home trades with only one other identical country.

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Starting from the long-run equilibrium without trade in the monopolistic competition model, consider...

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