Dumping by Monopolist 10 MC MRfor Ddom MRdom 10 The figure above represents the

Question

Dumping by Monopolist 10 MC MRfor Ddom MRdom 10 The figure above represents the demand and cost functions facing a Brazilian Steel producing monopolist where MRdom and Ddom are the marginal revenue and demand curves for its sales in the domestic market, Dfor and MRfor are the demand and marginal revenue for its sales in the U.S. market and MC is it marginal cost curve (This picture should be familiar from the discussion of the economics of dumping in class) a) (5 points) If it were unable to export to the U.S, and was constrained by its domestic market, what quantity would b) (10 points) Now suppose the Brazilian firm can export to the U.S. (the demand curve it faces in the U.S. market is it sell and at what price in Brazil (its domestic market)? Dfor which is same as the marginal revenue curve MRfor) in addition to selling in the domestie market. What price does the firm charge in the U.S. market? How much does the firm export? What price does it charge in the domestic market? How much does it sell in the domestic market? Is the Brazilian firm engaged in dumping? Is it good or bad for the U.S. consumers?

Explanation / Answer

a. If it was constrained by the domestic market, then it will sell at a point where MR = MC ( dom) i.e. at 5 units and the price will be the corresponding point on the demand curve i.e 8

b. If it now exports to the US market, it will sell at a point where MRfor = MC i.e at 10units and the price will equal the corresponding point on the demand curve i.e 5 . Hence, the price charged in domestic market is 8 while the price charged in foreign market is 5. It sells 10 units in the foreign market and 5 units in the domestic market. Yes, the Brazilian firm is engaged in dumping as it sells at a lesser price to foreign markets as compared to the domestic market. It is good for the US consumers as they get the goods at a cheaper price

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