Demand is given by: Qd = 6000 - 50P, Domestic supply is: Qs = 2*P, and Foreign p

Question

Demand is given by: Qd = 6000 - 50P, Domestic supply is: Qs = 2*P, and Foreign producers can supply any quantity at a price of $40. Calculate each the following:

a. If foreign producers cannot sell in the domestic market, what is the equilibrium price? Quantity? Revenue?

b. If foreign producers can sell in the domestic market, what is the equilibrium price? What is the equilibrium quantity? How much is sold by domestic and foreign producers, respectively? What is the revenue for domestic and foreign producers, respectively?

c. Under domestic government pressure, foreign producers voluntarily agree to restrict their goods. Relative to (b): What will happen to the price and quantity? What will happen to the amount that domestic producers supply? What will happen to revenues of domestic and foreign producers?

Explanation / Answer

a) If foreigners can't sell then the equilibrium will be when Qd = Qs

or 6000 - 50P = 2*P. This gives P = 115.3846. so the equilibrium price = $115.38

Quantity = 230.77 and revenue = $26627.22

b) if foreign producers can sell the supply will be infinite and price will be determined by the price at which they sell that is $40, Quantity = 6000 - 50*40 = 4000.

Foreign producers will sell 4000 and domestic producers will sell Qs = 2*40 = 80.

Revenue for domestic players will be 80*40 = $3200

Revenue for foreign players will be 4000*40 = $160000

c) If the foreign producers restrict their goods the equilibrium point will shift upwards that is the equilibrium price will go up. The quantity will come down.

The amount that domestic producers supply will increase

The revenues of domestic players will increase and the revenues of foreign players will decrease

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.