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China controls 80% of the world's lithium refining, a material needed for the production of lithium batteries in electric vehicles. The demand for lithium batteries
China controls 80% of the world's lithium refining, a material needed for the production of lithium batteries in electric vehicles.
The demand for lithium batteries is P = $20,000 - 2.5 Q, where Q is in tons and P is in $/ton. The long run marginal and average cost of production is constant at $2,000/ton.
- Assuming the monopoly model applies, determine price, quantity, and profit for China.
- Now assume new firms (including Piedmont Lithium) enter the lithium market, resulting in (perfect) competition. Determine the price, quantity, and profits, when the industry is in (long run) equilibrium.
- Finally, compare social welfare for the two cases, and determine deadweight loss.
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