1 microecon,,

(a) Suppose the Indian government levies an export tax TS on each unit quantity of software. (i) (1 point) Write down expressions for the profits of Programagica and Denovo as functions of the prices and the tax rate. (ii) (4 points) Calculate the best response functions giving each manufacturer's profitmaximizing price as a function of the other's price and the tax rate. (iii) (2 points) Solve these functions to express the Bertrand-Nash equilibrium prices as functions of the tax rate. (iv) (3 points) Find the resulting expressions for the quantities and the profits of each firm, also as functions of the tax rate. (b) The Indian government wants to maximize the country's welfare or total surplus, which equals Programagica' profit plus the government's tax revenue. The Chinese government is not deploying any strategic trade policy; its total surplus is simply Denovo's profit. (i) (2 points) What are the Indian and Chinese total surpluses in the absence of any policy, that is, when TS = 0? (ii) (5 points) What is Indian government's optimal choice of TS ? (iii) (2 points) What are the resulting Indian and Chinese total surpluses and how do they compare to the case when TS = 0? (iv) (6 points) How do these results differ from the Airbus-Boeing duopoly of Problem Set 5? Give an economic explanation for your findings.

suppose that all computer hardware is produced by Denovo, a 100% Chinese-owned company, and all software is produced by Programagica, a 100% Indian-owned company. They compete in world markets as price-setting duopolists. For the purpose of this question you should ignore the market for these goods/services within China and India, and focus only on the export market in the rest of the world. The demand functions for the two in that market are given by QH = 400 - PH - PS and QS = 400 - PH - PS where Q denotes quantity, P denotes price, H denotes hardware, and S denotes software. The average and marginal costs of producing each unit quantity, whether of hardware or of software, equal 80. The Indian government is contemplating a strategic trade policy.

Followings are the spot exchange rates quoted at three different forex markets: USD/INR 59.25/ 59.35 in Mumbai GBP/INR 102.50/103.00 in London GBP/USD 1.70/ 1.72 in New York The arbitrageur has USD1,00,00,000. Assuming that bank wishes to retain an exchange margin of 0.125%, explain whether there is any arbitrage gain possible from the quoted spot exchange rates.

You as a dealer in foreign exchange have the following position in Great British Pound on 31st November, 2015 : GBP Balance in the Nostro A/c Credit 5,00,000 Opening Position Overbought 100,000 Purchased a bill on London 90,000 Sold forward TT 80,000 Forward purchase contract cancelled 40,000 Remitted by TT 125,000 Draft on London cancelled 60,000 What steps would you take, if you are required to maintain a credit Balance of GBP 80,000 in the Nostro A/c and keep as overbought position on GBP 40,000 ?

An Indian importer has a payable of C$ 5,00,000 due on 31.3.2002. On 01.01.2002, the importer covers the payable through forward buying of C$ at Rs. 30.34 from his banker. On 3l-3-2002, he requests the banker to extend the contract till 30-4-2002. The exchange rates as on 31-3-2002 are Rs./C$ Spot 30.54/63 1 month forward 30.56/68 You are required to find out the net cash outflow for the importer.

An Indian software company had approached State Bank of India (SBI) for forward sale of 100,000 delivery on May 31, 2001. The bank had quoted a rate of Rs.65.60/ for the purchase of pound sterling from the customer. But on May 31st, the customer informed the bank that it was not able to deliver the pound sterling as anticipated receivable from London has not materialized and requested the bank to extend the contract for delivery July 31st. The following are the market quotes available on May 31, 2001: Spot Rs/ 66.60/65 1m forward 20/25 2m forward 41/46 3m forward 62/68 You are required to find out the extension charges payable by the software company.