In Brazil, each of the n firms operating in the monopolistically competitive car industry manufactures cars that are imperfect substitutes for the automobiles produced by their competitors elsewhere. All Brazilian firms have identical cost structures: Initial investment cost of a car factory is 2.65 billion (2.65x10⁹) dollars and there is a variable cost of $20,000 per car to be manufactured. Write the total cost function of a typical car manufacturer by assuming that Q = S/n and use the following information to answer the following questions. lost one of The size of domestic market (S) is proxied by the country's population of 212 million (i.e., S = 212x106). The relationship between the price to be charged per car and marginal revenue of a firm in the car industry is given by MR = P- Q/0.005(S) a) Calculate the equilibrium number of firms in the Brazilian market and show this equilibrium on a graph with clearly labeled axes. b) Assume that in addition to domestic market, there are 848 million people abroad, making up a potential market for Brazilian car manufacturers. What happens to the equilibrium in (a), if they start exporting cars to this market? Modify your graph above accordingly, show new values of key variables and briefly discuss the welfare effect of the growth in market size.
