It is the dream of corporate contributors to political campaigns that they might

Question

It is the dream of corporate contributors to political campaigns that they might "buy" protection from the pressures of the competitive market. Only a few, including the sugar beet and sugar cane industry, have achieved that dream. In this problem we explore this dream analytically.

A. Assume that the sugar industry (ignore the beet and cane distinction) would otherwise be competitive, with

(i) a large number of price taking domestic firms with "standard" cost curves, i.e. positive fixed costs and increasing marginal cost, and

(ii) a set of producers abroad who supply an amount S0 independent of price.

Illustrate graphically, using firm/industry analysis, the price and domestic firm and market output in long run equilibrium. Briefly explain why this is a long run equilibrium situation.

B. Imagine that domestic producers “pass the hat” and buy sufficient legislators to have a ban on sugar imports (supply from abroad) imposed. Derive graphically the short run price and domestic firm and market output that would emerge. Indicate a measure of the profits this legislative success would bring each of the firms in the short run.

C. What is the short run welfare loss generated by the industry's success in the political arena? Illustrate graphically.

Explanation / Answer

eat lots of chicken -7

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