Trade protectionism has always been a contentious political issue, and goes all the way back to Alexander Hamilton's argument for protecting "infant industries". Let's examine how such a trade protectionist policy may work: Suppose there are two firms, Firm 1 and Firm 2, and that the demand curve in the industry is given by P=120-0-0, f Firm 1 is the "experienced foreign firm and Firm 2 is the "inexperienced infant firm", the argument goes that the experienced foreign firm will have had enough time to achieve lower costs of production. Hence, protecting the infant industry would amount to imposing a tariff of the foreign firm, which essentially increases that firm's costs in order to make the infant industry more competitive. To that end, suppose that TC(0)=(2+1)0, and TC(0,)=40, Notice that when there is no tariff (t=0), Firm 1 does in fact operate at lower costs than Firm 2. F Let's analyze this scenario by beginning to solve for each firm's best response function. In this case, we have that MR-120-20-22. MC =2+1 and MR = IR-120-01-202: MC=4 Solve for each firm's best response. QUESTION 15 (Trade Protectionist Question) Suppose the government imposes a no, tariff so that t=0. What will be the equilibrium output and the profit for each firm? (Round each answer to two decimal places, for example 10.32. Also, do not use dollar signs or commas in the profit calculation. For example: 2675). 9= Q= Firm 1 Profit- Firm 2 Profit=
Trade protectionism has always been a contentious political issue, and goes all the way back to Alexander Hamilton's argument for protecting "infant industries". Let's examine how such a trade protectionist policy may work: Suppose there are two firms, Firm 1 and Firm 2, and that the demand curve in the industry is given by P=120-0-0, f Firm 1 is the "experienced foreign firm and Firm 2 is the "inexperienced infant firm", the argument goes that the experienced foreign firm will have had enough time to achieve lower costs of production. Hence, protecting the infant industry would amount to imposing a tariff of the foreign firm, which essentially increases that firm's costs in order to make the infant industry more competitive. To that end, suppose that TC(0)=(2+1)0, and TC(0,)=40, Notice that when there is no tariff (t=0), Firm 1 does in fact operate at lower costs than Firm 2. F Let's analyze this scenario by beginning to solve for each firm's best response function. In this case, we have that MR-120-20-22. MC =2+1 and MR = IR-120-01-202: MC=4 Solve for each firm's best response. QUESTION 15 (Trade Protectionist Question) Suppose the government imposes a no, tariff so that t=0. What will be the equilibrium output and the profit for each firm? (Round each answer to two decimal places, for example 10.32. Also, do not use dollar signs or commas in the profit calculation. For example: 2675). 9= Q= Firm 1 Profit- Firm 2 Profit=
Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
Problem 1CQQ
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Transcribed Image Text:Trade protectionism has always been a contentious political issue, and goes all the way back to Alexander Hamilton's
argument for protecting "infant industries". Let's examine how such a trade protectionist policy may work: Suppose
there are two firms, Firm 1 and Firm 2, and that the demand curve in the industry is given by P=120-0-0, f
Firm 1 is the "experienced foreign firm and Firm 2 is the "inexperienced infant firm", the argument goes that the
experienced foreign firm will have had enough time to achieve lower costs of production. Hence, protecting the infant
industry would amount to imposing a tariff of the foreign firm, which essentially increases that firm's costs in order to
make the infant industry more competitive. To that end, suppose that TC(0)=(2+1)0, and TC(0,)=40,
Notice that when there is no tariff (t=0), Firm 1 does in fact operate at lower costs than Firm 2.
F
Let's analyze this scenario by beginning to solve for each firm's best response function. In this case, we have that
MR-120-20-22. MC =2+1
and
MR =
IR-120-01-202: MC=4
Solve for each firm's best response.
QUESTION 15
(Trade Protectionist Question) Suppose the government imposes a no, tariff so that t=0. What will be the equilibrium
output and the profit for each firm? (Round each answer to two decimal places, for example 10.32. Also, do not use
dollar signs or commas in the profit calculation. For example: 2675).
9=
Q=
Firm 1 Profit-
Firm 2 Profit=
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