A multinational enterprise (MNE) supplies steel at home and abroad. Demand at home is P_h = 30 - Q_h (Q is quantity demanded), and abroad is P_f = 20 - Q_f The MNE can produce steel at home, according to a total cost function C_h = 10 S_h (S is quantity supplied or produced) or at its foreign subsidiary, according to C_f = 5 S_f + S_f² . The MNE has monopoly power in both markets.

a. To maximize profits, what is MNE's optimal production, sales and price pattern? Is steel traded, i.e. are shipments made across national boundaries? (Assume zero transport costs for MNE but that re-sale from one country to another is not possible.) How much steel is shipped? How much profit does MNE make?

b. Suppose all trade is banned. Answer the questions in (a) under these new conditions.

c. Suppose the trade commissions in the two countries insist that the MNE charge the same price in the two countries. What are now its production, sales and price pattern? How much profit does it lose, relative to (a)?