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3. Trade Dispute You are a research associate covering the solar panel industry for Goldman Sachs. The countries of Transylvania and Oceania are having a trade dispute. Upset with behavior of Transylvanian firms, the government of Oceania is threatening to close its market to Transylvanian firms. You are asked to write a research report on the implications of this scenario. Some information about the solar panel industry in the Oceania and Transylvania: • Firms in both countries share the same technological characteristics. Consultants from Accen- ture report that the fixed cost associated with producing a solar panel are $50,000, the variable costs associated with producing a solar panel are $25. The demand elasticity parameter "b" was estimated to be 1/50. Revised: October 31, 2022

3. Trade Dispute You are a research associate covering the solar panel industry for Goldman Sachs. The countries of Transylvania and Oceania are having a trade dispute. Upset with behavior of Transylvanian firms, the government of Oceania is threatening to close its market to Transylvanian firms. You are asked to write a research report on the implications of this scenario. Some information about the solar panel industry in the Oceania and Transylvania: • Firms in both countries share the same technological characteristics. Consultants from Accen- ture report that the fixed cost associated with producing a solar panel are $50,000, the variable costs associated with producing a solar panel are $25. The demand elasticity parameter "b" was estimated to be 1/50. Revised: October 31, 2022

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please only do the last part of the question (part d)

### Trade Dispute You are a research associate covering the solar panel industry for Goldman Sachs. The countries of Transylvania and Oceania are having a trade dispute. Upset with the behavior of Transylvanian firms, the government of Oceania is threatening to close its market to Transylvanian firms. You are asked to write a research report on the implications of this scenario. #### Some information about the solar panel industry in Oceania and Transylvania: - Firms in both countries share the same technological characteristics. Consultants from Accenture report that the fixed cost associated with producing a solar panel is $50,000, while the variable costs associated with producing a solar panel are $25. The demand elasticity parameter "b" was estimated to be 1/50. *Revised: October 31, 2022*
Transcribed Image Text:### Trade Dispute You are a research associate covering the solar panel industry for Goldman Sachs. The countries of Transylvania and Oceania are having a trade dispute. Upset with the behavior of Transylvanian firms, the government of Oceania is threatening to close its market to Transylvanian firms. You are asked to write a research report on the implications of this scenario. #### Some information about the solar panel industry in Oceania and Transylvania: - Firms in both countries share the same technological characteristics. Consultants from Accenture report that the fixed cost associated with producing a solar panel is $50,000, while the variable costs associated with producing a solar panel are $25. The demand elasticity parameter "b" was estimated to be 1/50. *Revised: October 31, 2022*
- **Industry and Market Characteristics** - In the combined Oceania and Transylvania market, there are a total of 10 firms. - 3 firms are based in Oceania, while 7 are from Transylvania. - The total demand and units sold in this market are 100,000 units, with Oceania selling 25,000 units and Transylvania 75,000 units. - **Key Discussion Points** - **a. Market Composition and Long-Run Expectations** - Analysts predict that if the Oceania market closes to foreign competition, it may eventually consist solely of the current three local firms. Considerations should address whether this expectation aligns with market dynamics and economic principles. - **b. Market Evolution without Foreign Competition** - Explore the impacts on prices, average costs, and firm dynamics (entry/exit) if foreign competition is excluded from the Oceania market. - **c. Pricing Power and Revenue Implications** - Debate the perspective that closing the market would restore pricing power to local Oceania firms, potentially increasing each firm's revenue compared to the present situation. - **d. Efficiency and Productivity Changes** - Speculate on how differences in firm efficiency might affect overall industry productivity if the market excludes foreign competitors.
Transcribed Image Text:- **Industry and Market Characteristics** - In the combined Oceania and Transylvania market, there are a total of 10 firms. - 3 firms are based in Oceania, while 7 are from Transylvania. - The total demand and units sold in this market are 100,000 units, with Oceania selling 25,000 units and Transylvania 75,000 units. - **Key Discussion Points** - **a. Market Composition and Long-Run Expectations** - Analysts predict that if the Oceania market closes to foreign competition, it may eventually consist solely of the current three local firms. Considerations should address whether this expectation aligns with market dynamics and economic principles. - **b. Market Evolution without Foreign Competition** - Explore the impacts on prices, average costs, and firm dynamics (entry/exit) if foreign competition is excluded from the Oceania market. - **c. Pricing Power and Revenue Implications** - Debate the perspective that closing the market would restore pricing power to local Oceania firms, potentially increasing each firm's revenue compared to the present situation. - **d. Efficiency and Productivity Changes** - Speculate on how differences in firm efficiency might affect overall industry productivity if the market excludes foreign competitors.
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