Final answer:
An integration of economies between two countries will lead to a shift in output per firm and can drive price changes due to economies of scale and increased competition. After full integration and market adjustments, prices are expected to decrease, and in the long run, firms will reach a point where they earn zero economic profits.
Step-by-step explanation:
When two countries with different-sized markets and numbers of firms integrate their economies, changes occur in the output per firm, price of goods, and profits in the long run. For Country A with a market of 900,000 automobiles and 8 firms, the initial output per firm before integration is 112,500 automobiles (900,000 / 8). For Country B with a larger market of 1,600,000 automobiles and 6 firms, the initial output per firm is 266,666 automobiles (1,600,000 / 6).
After trade and the reduction to only 10 firms, the total combined market is 2,500,000 automobiles (900,000 + 1,600,000). Dividing this total market by the remaining 10 firms gives us a final output per firm of 250,000 automobiles.
According to economic theory, particularly economies of scale, the price of automobiles is expected to decrease after integration. This is because larger firms can often produce at lower average costs due to spreading their fixed costs over a larger number of units. Increased competition from trade can further drive down prices.
In the long run, this process can lead to zero economic profits as prices equal average costs, which is a characteristic of monopolistic competition when firms cannot earn economic profits in the long run due to the entry of new competitors.