Question: Assume two countries, A and B, with sizes of domestic markets 300 million and 533 1 3 million units in annual sales, respectively. In this market, firms compete by differentiating their product, while the cost structure among the firms is largely the same. In particular, let the fixed costs of firms be $5 × 109 , or five billion; marginal cost is $17,000 per unit; and the coefficient of sensitivity b is 1/150.
(a) In the absence of international trade, determine equilibrium price and number of firms in the market in each country.
(b) Now find the number of firms and equilibrium price in the integrated market with costless crossboarder trade.
(c) Succinctly describe two distinct effects of market integration on consumer welfare.