Chapter 12 Problems

Chapter 12 Problems - Chapter 12 Problems 1, 2, 5, 6 and 8...

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Chapter 12 Problems 1, 2, 5, 6 and 8
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Problem 1 • The effect of import competition on a domestic monopolist is illustrated on Figure 12.1 in terms of general equilibrium. Illustrate the same effect in terms of the standard graphical treatment of the monopolist in partial equilibrium. Show the closed-economy monopoly equilibrium and contrast what happens when the monopolist is confronted with a fixed world price for its output.
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Problem 1 Answer Initially, the monopolist produces 0Q units and sells them at price p m . With trade it may be the case that the world price is below the monopoly price. In this case, the monopolist will be forced to reduce its price to the world price and sell more units. This will imply loss in profits to the monopolist, a gain to consumers, and a welfare gain to the country as a whole.
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Problem 2 • Economists discussing the feasibility of international commodity-price stabilization agreements have pointed out that price stabilization is easier if the commodity can be stored at a low cost. Why should that be so?
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Problem 2 Answer If a commodity has low storage costs, then a buffer stock of the commodity can be maintained. Therefore, the quantity available for sale each period can be maintained at a constant level. If demand is relatively stable, this will
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Chapter 12 Problems - Chapter 12 Problems 1, 2, 5, 6 and 8...

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