2) Suppose that the fixed cost of producing a music album is $50, and that demand for a given artist’s album is given by P = 20 – 2N – Q, where N is the number of artists in the industry. The marginal cost of each unit is $0.
a. Find the equilibrium number of firms in autarky (Hint: Marginal revenue for each firm is given by MR = 20-2N -2Q). In addition, find the price set by each firm.
b. Find equilibrium number of firms in an integrated market consisting of the home country and an identical foreign country (Hint: Global demand for each firm will now be P = 20 – 2N – Q/2). In addition, find the average cost and price of each firm.
c. Comment on the differences in the market outcomes of the autarky and integrated economies.
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