Unformatted text preview: What is the net welfare effect on the country as a whole? 3. Suppose that the free trade payoff matrix of domestic and foreign firm is given as: Foreign Firm Domestic Firm a) Will the foreign firm produce the good? Why or why not? Assuming no subsidy, will the home firm produce the good? Why or why not? b) Suppose, now, that a subsidy of $ 50 is given to the home firm. Will this subsidy change the production pattern from that of part a)? If so, why? If not, why not? Is it beneficial to the home country? Explain. Produce Does not produce Produce -30, 20 100, 0 Does not Produce 0, 140 0, 0...
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- Spring '10
- Protectionism, wage rate, foreign firm, domestic firm, domestic consumption decreases