Question
To take advantage of the international bike shortage, Giant, the world largest bike manufacturer from Taiwan, resumed producing bikes for the US market in China.
To take advantage of the "international bike shortage", Giant, the world largest bike manufacturer from Taiwan, resumed producing bikes for the US market in China. Presently, the US tariffs on the bikes produced in China make them more costly to deliver to American consumers compared to the bikes produced in Taiwan.
Suppose that prior to the pandemic, the average cost of a Giant bike sold in the US was $100 and all bikes were produced in Taiwan. Presently, the cost of those bikes did not change, but because of the added production in China, the average cost of a bike sold by Giant in the US is $106 and 30% of the bikes presently sold by Giant in the US are manufactured in China. To keep things simple, assume that the bike making technology in China exhibits constant returns to scale, so that every bike is equally costly to produce. What is the best way to estimate Giant's marginal cost in the US?
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