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Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $50 and a fixed cost of $22,500. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States to maximize its profits. The demand for BMWS in each market is given by: QE = 8,000 - 80PĘ and Qu = 4,000 - 20 Pu. where the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. Support your answers graphically as well. a. If, by an international agreement between Europe and United States, BMW were forced to charge the same price in each market, what would be the quantity sold in each market, the equilibrium price, and the company's profit? b. Suppose now that Europe and United States signed a new trade package under which BMW now can charge different prices across the two markets. What quantity of BMWS should the firm sell in each market, and what should the price be in each market? What should the total profit be? (Note: Suppose BMW is restricted to set a uniform price per car in each market, respectively.)

Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $50 and a fixed cost of $22,500. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States to maximize its profits. The demand for BMWS in each market is given by: QE = 8,000 - 80PĘ and Qu = 4,000 - 20 Pu. where the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. Support your answers graphically as well. a. If, by an international agreement between Europe and United States, BMW were forced to charge the same price in each market, what would be the quantity sold in each market, the equilibrium price, and the company's profit? b. Suppose now that Europe and United States signed a new trade package under which BMW now can charge different prices across the two markets. What quantity of BMWS should the firm sell in each market, and what should the price be in each market? What should the total profit be? (Note: Suppose BMW is restricted to set a uniform price per car in each market, respectively.)

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter24: Price-searcher Markets With High Entry Barriers
Section: Chapter Questions
Problem 13CQ
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Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $50 and a fixed cost of $22,500. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States to maximize its profits. The demand for BMWS in each market is given by: QE = 8,000 - 80PE and Qu = 4,000 - 20 Pu, where the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. Support your answers %3D graphically as well. a. If, by an international agreement between Europe and United States, BMW were forced to charge the same price in each market, what would be the quantity sold in each market, the equilibrium price, and the company's profit? b. Suppose now that Europe and United States signed a new trade package under which BMW now can charge different prices across the two markets. What quantity of BMWS should the firm sell in each market, and what should the price be in each market? What should the total profit be? (Note: Suppose BMW is restricted to set a uniform price per car in each market, respectively.)
Transcribed Image Text:Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $50 and a fixed cost of $22,500. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States to maximize its profits. The demand for BMWS in each market is given by: QE = 8,000 - 80PE and Qu = 4,000 - 20 Pu, where the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. Support your answers %3D graphically as well. a. If, by an international agreement between Europe and United States, BMW were forced to charge the same price in each market, what would be the quantity sold in each market, the equilibrium price, and the company's profit? b. Suppose now that Europe and United States signed a new trade package under which BMW now can charge different prices across the two markets. What quantity of BMWS should the firm sell in each market, and what should the price be in each market? What should the total profit be? (Note: Suppose BMW is restricted to set a uniform price per car in each market, respectively.)
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