Tutorial 7

Tutorial 7 - by the Foreign firm in the Home market; and Z...

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Tutorial 7 (Selected problems from Ch6 and Ch8) 1. Consider the reciprocal dumping model with symmetric countries and symmetric firms as discussed in class. Suppose marginal cost C=5 and the demand in each market is p=100Z -1/ε , where ε=2. Suppose the fixed costs are so low that each firm will always be in business. Fill in the following table about the equilibrium market condition in the home country. g x y Z p σ≡y/(x+y) 0.2 0.4 0.6 0.8 1.0 Note: x is the quantity supplied by the Home firm in the Home market; y is the quantity supplied
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Unformatted text preview: by the Foreign firm in the Home market; and Z is the total quantity in the Home market, i.e., x + y. Marginal cost after transportation is C/g. 2. The home demand and supply function are: D = 400 – 10P S = 50 + 5P a) Suppose the world price is originally 15. Solve for the quantity imported. A quota of 50 units is imposed. Assume this country is small. b) What is the new domestic price? c) How much are the quota rents? d) Calculate the net welfare loss to the economy....
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This note was uploaded on 02/23/2011 for the course ECON 301 taught by Professor S.chiu during the Spring '11 term at HKU.

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