Chapter 9

Which of the examples cited in the next was the most successful case of infant industry protection?

Harley-Davidson

International dumping occurs when:

Monopolistic firms charge a higher price in their domestic market and a lower price in their foreign market.

The WTO has encouraged nations to replace their import quotas with tariffs. Why?

None of these answer choices are correct. -Quotas hurt domestic firms more than equivalent tariffs -Quotas are more difficult to administer for the customs people. -Quotas do not have any effect on the domestic price.

When the United States imposed a 25% tariff on imported pickup trucks, the price of Japanese pickup tructs in the United States:

Rose by less than 25%.

An example of infant industry protection is the computer industry in Brazil from 1977 to 1988. It is widely concluded tha the effort was

a failure

A foreign discriminating monopolist may engage in

dumping its product

When a tariff is applied to a good exported by a foreign monopoly (with no home producer and linear demand curve), the increase in the equilibrium price is _______ the tariff applied.

less than

The no-trade equilibrium in a perfectly competitive market occurs when

market quantity demanded equals market quantity supplied

A knowledge spillover occurs when firms

mimic the successful innovations of other firms

A foreign firm that is selling below cost and is accused of dumping often:

raises its export prices to reap the rents and avoid the antidumping tariff completely

When an import quota is used to protect a domestic monopolist from international competition, quota rents will ________ and the domestic price will ______.

rise, rise

A country's net welfare will increase when it imposes a tariff on a foreign monopolist (with no domestic production) if its:

terms-of-trade gain is greater than its loss of cunsumer surplus.

An analysis of the case of Harley-Davidson reveals that the deadweight loss of import protection______ the gain in future producer surplus

was slightly less than

Consider a discriminating monopolist facing the following market conditions: The demand curve it its home market is P = 200 - Q yielding a marginal revenue curve MR = 200 - 2Q; the demand curve in its foreign market is P = 160 - Q yielding a marginal revenue curve MR = 160 - 2Q; and its marginal cost is constant and equal to $20 per unit produced. The monopolist's profit-maximizing price in the domestic market is

$110 20=200-2Q; Q=90 P=200-90

A home monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC=Q^2. By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. What is the profit maximizing price that the domestic monopoly charges?

$12

A home monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC=Q^2. By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. What is the no-trade profit-maximizing price?

$15 MC=MR 2Q=20-2Q; Q=5 P=20-5

Consider a discriminating monopolist facing the following market conditions: The demand curve it its home market is P = 200 - Q yielding a marginal revenue curve MR = 200 - 2Q; the demand curve in its foreign market is P = 160 - Q yielding a marginal revenue curve MR = 160 - 2Q; and its marginal cost is constant and equal to $20 per unit produced. The monopolist's profit maximizing price in the foreign market is

$90 The first step is to determine the profit maximizing output in the foreign market which is found by setting MC=MR in the foreign market yielding Q = 70. The second step is to use the demand equation in the foreign market P = 160-Q, plug Q = 70 and find the profit maximizing price which is $90.

The U.S. and Japanese automakers___________during the automobile VER of the 1980s.

Both enjoyed higher prices and higher profits

As China's auto production capability has evolved, it is unclear whether protection was beneficial or harmful. Why?

Even greater progress in moving toward exports was made by firms that did not gain from tariffs or technology transfer.

A home monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC=Q^2 . By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. What is the quantity of imports under free trade?

2 Imports equal the difference between consumption and production. Since the international price equals $12, consumption Q solves the demand equation $12 = 20 -Q, which implies that consumption is 8 units. Production is determined by equation $12=2Q which results in 6 units. As a result, imports equal 8 -6 =2.

A home monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC=Q^2. By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. Now suppose that the country in which this domestic monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. What is the profit maximizing output level?

6 Pw=MC 12=2Q

Consider a discriminating monopolist facing the following market conditions: The demand curve it its home market is P = 200 - Q yielding a marginal revenue curve MR = 200 - 2Q; the demand curve in its foreign market is P = 160 - Q yielding a marginal revenue curve MR = 160 - 2Q; and its marginal cost is constant and equal to $20 per unit produced. The discriminating monopolist's profit-maximizing output in the foreign market is

70 The profit maximizing quantity in the foreign market satisfies the equation MC = MR where MC=20 and MR=160-2Q which yields the value Q=70.

Consider a discriminating monopolist facing the following market conditions: The demand curve it its home market is P = 200 - Q yielding a marginal revenue curve MR = 200 - 2Q; the demand curve in its foreign market is P = 160 - Q yielding a marginal revenue curve MR = 160 - 2Q; and its marginal cost is constant and equal to $20 per unit produced. The monopolist's profit-maximizing output in the domestic market is

90 The profit-maximizing output is given by setting marginal cost equal to marginal revenue: MC=20 and MR= 200- 2Q and therefore Q=90.

The WTO opposes quotas. Why did the WTO not stop the U.S. -Japanese quota during the 1980s?

There was a loophole in the GATT (at the time) that did not restrict nations from "voluntarily" curtailing their own exports.

Why do monopolistic firms practice international dumping?

They face more elastic demand conditions in their foreign market than in their domestic market.