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Hi can u help me answer and solve this question in detail please? Consider the market for radios, which are produced by a Home firm,
Hi can u help me answer and solve this question in detail please?
Consider the market for radios, which are produced by a Home firm, firm H, and a Foreign firm, firm F. These are the only two countries in the world. In both countries, the demand curve for radios is ) = 36 P, where P is the price consumers face and Q is the total number of radios sold. Both firm H and firm F produce at a constant marginal cost of 6 per radio. Assume that no one aside from firm H and firm F can transport radios between the two countries, so it is possible for the price of radios in the two economies to be different. (a) Suppose the industry is a quantity-setting Cournot oligopoly. Compute the equilibrium in Home country under free trade, and depict it on a reaction-function diagram with firm H's sales g5 on the horizontal axis and firm F's output g- on the vertical axis. [8 marks] (b) Home government decides to impose a 3 import tariff per radio. Compute the new equilibrium in Home country, and show it on a reaction-function diagram like the one used in part (a). [8 marks] (} Calculate and show on a figure Home welfare before and after tariff. Does it raise Home welfare? If so, what is the economic mechanism? [8 marks] (d) Mow, instead of a tariff, Home government convinces the Foreign government to impose a Voluntary Export Restraint (VER) on firm F. The VER restricts firm F's exports to be no more than half of its free-trade exports. Find the new equilibrium and compare it to part (b). Show the equilibrium on a reaction-function diagram. [6 marks] (e) Mow suppose that the industry is a price-setting Bertrand oligopoly. Compute the equilibrium and the resulting welfare under free trade in Home country. [6 marks] (f} Continue to assume that firms compete in prices, and consider a VER imposed by the Foreign government that limits firm F's exports to be no greater than how much it would be under Bertrand competition with no trade barriers. Using a 2-stage sequential game in which firm H is the leader and firm F is the follower, compute the equilibrium and analyse the effect of the VER on Home country's welfare (compared to the no-VER Bertrand case). [8 marks] (g) Is this a policy that the firm F would like? Would the Foreign government like to continue this policy even if the Home government was not demanding it? Explain carefully. [6 marks]Step by Step Solution
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