tarifts can be a way to incentivize companies to build factor ies in the respect
ID: 1112406 • Letter: T
Question
tarifts can be a way to incentivize companies to build factor ies in the respective countries they sell in. This can work if the demand in that country is big enough to cover the cost of building a plant or factory there (e.g. in the U.S. or China) but might not in smaller countries. To see this, let's look at an example Suppose for simplicity that Apple has a worldwide monopoly on smartphones. Suppose demand in the U.S. is Q = 80-4P. Assume that it can produce at constant marginal cost MC = 6 and has a fixed cost of production of F 5.Explanation / Answer
Profut is maximised where MR=MC
Q=80-4P. P=20-0.25Q.
MR=dTR/dQ=20-0.5Q and MC=6
MR=MC then 20-0.5Q=6
14=0.5Q
Q=28 and P=20-7=13
Profit=PQ-TC=13*28-6*28-5=191
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