Consider the UK automotive sector, where firms with heterogeneous productivity, subject to increasing returns to scale, produce a differentiated good and sell it in a monopolistically competitive market. Firms selling in the domestic market are subject to a fixed cost fo. Exporting to the EU entails both a fixed cost fx and a variable cost 7. Suppose that the introduction of tariffs and border checks increase the variable trade cost 7, but the government decides to compensate for this by reducing the fixed export cost fx so that the number of exporters (hence the cut-off productivity ox) does not change. Then: UK exporters will sell less and make lower profits in the EU market while domestic sales will increase and more firms will survive Ob. none of the others Oc. UK exporters will sell less in the EU market but their profits will be unchanged, while nothing changes in domestic sales O d. nothing changes for both UK exporters and non-exporters

Consider the UK automotive sector, where firms with heterogeneous productivity, subject to increasing returns to scale, produce a differentiated good and sell it in a monopolistically competitive market. Firms selling in the domestic market are subject to a fixed cost fo. Exporting to the EU entails both a fixed cost fx and a variable cost 7. Suppose that the introduction of tariffs and border checks increase the variable trade cost 7, but the government decides to compensate for this by reducing the fixed export cost fx so that the number of exporters (hence the cut-off productivity ox) does not change. Then: UK exporters will sell less and make lower profits in the EU market while domestic sales will increase and more firms will survive Ob. none of the others Oc. UK exporters will sell less in the EU market but their profits will be unchanged, while nothing changes in domestic sales O d. nothing changes for both UK exporters and non-exporters

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Monopoly

Section: Chapter Questions

Problem 9PA

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Suppose the market for Hula Hoops is monopolized by a single firm. a. Draw the initial equilibrium for such a market. b. Now suppose the demand for Hula Hoops shifts outward slightly. Show that, in general (contrary to the competitive case), it will not be possible to predict the effect of this shift in demand on the market price of Hula Hoops. c. Consider three possible ways in which the price elasticity of demand might change as the demand curve shifts: It might increase, it might decrease, or it might stay the same. Consider also that marginal costs for the monopolist might be increasing, decreasing, or constant in the range where MR=MC Consequently, there are nine different combinations of types of demand shifts and marginal cost slope configurations. Analyze each of these to determine for which it is possible to make a definite prediction about the effect of the shift in demand on the price of Hula Hoops.
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