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Dumping Assume that a firm is a monopolist at Home facing theinverse-demand curve, P = 10 - Q, but is one of many competitors inthe world market, where it can sell its output at a price Pw = 2.Furthermore, assume that the firms total cost is given by: T C (Q)= 10 + Q2 . Answer the following questions:

  1. (a) Find the optimal level of output that maximizes the firm's total profits. Is it optimal for the firm to export?

  2. (b) What happens if Pw increases to 4? Explain the economicintuition.

  3. (c) Now suppose that Pw = 6. Is this firm dumping?

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Kritika Krishnakumar
Kritika KrishnakumarLv10
28 Sep 2019

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Related questions

1. Consider a single firm facing inverse demand function
p=100-10q
where q is the quantity of the good produced and p is the price for the good.
The firm has a linear cost function C(q)=10q.
Find the firm's profit-maximizing quantity, q*.

2. Suppose now two firms are facing inverse demand function
p = 100 - 10Q
where Q=q_1 + q _ 2 is the total quantity of the good produced and p is the price for the good.
Each firm has linear cost function C(q) = 10q .
Find the competitive equilibrium output, Q *

3. Compare the monopoly price in Q1, call it p^M, to the competitive equilibrium price in Q2, call it p^CE,
What is p^M - p^CE

4. Consider the alcohol consumption problem (e.g., Tadelis 1.4) and suppose your payoff is given by
v (a ; theta)= (theta*a) - c*a^2
where c > 0 is the cost of consuming amount a and theta belongs to [1,6] is your tolerance for alcohol.
Find your optimal consumption when theta is distributed uniformly on the interval [1,6].

1. suppose you work as a research economist at the EPA. Two firms operate in a perfectly competitive market. This implies that each has the same marginal benefit curve, which in this case is horizontal at MB= $100. Each of the firms, however, has a different marginal private cost schedule

MPC1=20+Q and MPC2=30+2Q

Each firm's production process creates externalities that are valued by society at $10 per unit output

a) show that without government intervention, the firms' profit-maximizing outputs are Q=80 for firm 1 and Q=35 for firm 2, and the market is $100

b) Now calculate that socially optimal level of output for each firm

c) your boss knows that the firms are currently producing too much output a simply decides that all firms should cut their output by 15%. Show that this is an inefficient solution to this externality problem

2. Suppose a new submarine for the Navy costs $10 billion. Half the population (130 million people) are willing to pay $100 each to have it, and the other half are willing to pay $30 each not to have it. Should it be built?

NUMBER 1.

a. A firm is currently producing 40 units of output. At this level of ouput produced:

. Its average total cost is 130 (ATC = 130)

. The price per unit of output is 150

. MR = 30

. MC = 50

i. Is this firm making profits or losses? How much?

ii. Are they máximum profits? Why?

iii. If your answer to part ii. was no, what does this firm have to do to maximize its profits?

NUMBER 2.

A firm’s total cost and marginal cost functions are

TC = 10 Q2 + 2 Q – 2 ; MC = 20 Q + 2.

Asuming that the market price is 42 and that the marginal revenue (MR) is also 42 (it is constant at all output levels), how much output will this firm sell (produce) to maximize profits?

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