solutions-midterm2-eco101-06

solutions-midterm2-eco101-06 - Q1. - Home exports cloths....

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Q1. --- Home exports cloths. The terms of trade (ToT) are PC/PF. An improvement in the ToT means a flatter slope of the depicted international trade line so that it cuts through the prior indifference curve. A welfare improvement results. Q2. --- The PP schedule depicts all profit maximizing P-n combinations after entry, where marginal revenue equals marginal cost (MR=MC; P=1/(bn)+c). The CC schedule depicts the P-n combinations for which the last entrant just breaks even, so that price equals average cost (P=AC; P=(F/S)n+c). East Asia's trade promotion reduces marginal cost c, so that both the PP and the CC schedule shift down to the same degree, resulting in the same number of varieties n and a lower equilibrium price. Latin America's trade restriction increases marginal cost c, so that both the PP and the CC schedule shift up to the same degree, resulting in the same number of varieties but a higher equilibrium price. Q3. --- Under constant marginal cost, the monopolist behaves like two independent monopolists in the two segmented markets. Start at the point where MR=MC and find Q.
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This note was uploaded on 10/27/2011 for the course ECON 101 taught by Professor Jacobson during the Fall '03 term at UCSD.

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solutions-midterm2-eco101-06 - Q1. - Home exports cloths....

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