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Please use the second screenshot to solve for the question directly below: Trade protectionism has always been a contentious political issue. and goes all the
Please use the second screenshot to solve for the question directly below:
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 mayr work: Suppose there are two firms. Firm 1 and Firm 2. and that the demand curve in the industry is given by P = 1207 Q 17 Q: If Firm 1 is the "experienced foreign rm" and Firm 2 is the "inexperienced infant rm". 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 tariffof the foreign firm. which essentially increases that firm's costs in order to make the infant industry more competitive. To that end. suppose that [C' E Q_ 1] = (2+ t] Q1 and 'I'C' ( Q?) = 4Q1. Notice that when there is no tan'ff (FD). Firm 1 does in fact operate at lower costs than Firm 2. Let's analyze this scenario by beginning to solve for each firm's best response function. In this case. we have that MR1: 120 2Q1 QR _ M{"1=2+ : and MR: 120 Ql 2Q\" M(:'~_=4 Solve for each iirm's best response. 0 937: 1 HR 1 Q = n are 1 92:48E Q1 0 1 are 1 (21211339: 1 HR 1 02:113E ()1 r.) [:JHR11Q1248Q,' HR 1Q1=487 Q1 r.) 113: 0-; HR 1 Q : 1 2 2 0'1 HRn1Q258 A A 2 (Trade Protectionist Question) Suppose the government imposes a tariff of t=6. 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). Q, = Firm 1 Profit= Firm 2 Profit=Step by Step Solution
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