sub= 24 help 6. In this problem, we analyze the effects of an import quota appliedby a country facing a Foreign monopolist. In Figure 9-7, supposethat the Home country applies an import quota of X2, meaningthat the Foreign firm cannot sell any more than that amount.a. To achieve export sales of X2, what is the highest price that theForeign firm can charge?b. At the price you have identified in part (a), what is the Homeconsumer surplus?c. Compare the consumer surplus you identify in part (b) with theconsumer surplus under free trade. Therefore, outline in Figure9-7 the Home losses due to the quota. Hint: Remember that thereis no Home firm, so you do not need to take into account Homeproducer surplus or tariff revenue. Assume that quota rents go toForeign firms.d. Based on your answer to (c), which has the greater loss to theHome country-a tariff or a quota, leading to the same level ofsales X2 by the Foreign firm?Figure 9-7PriceIncrease in Pis less than t,the increasein MCdeP3 = P2 - tMC* + tIncrease inMC due totariff, tMC*AMRForeign exports

A quota is an administration forced exchange limitation that restricts the number of the…

6. In this problem, we analyze the effects of an import quota applied by a country facing a Foreign monopolist. In Figure 9-7, suppose that the Home country applies an import quota of X2, meaning that the Foreign firm cannot sell any more than that amount. a. To achieve export sales of X2, what is the highest price that the Foreign firm can charge?

6. In this problem, we analyze the effects of an import quota applied by a country facing a Foreign monopolist. In Figure 9-7, suppose that the Home country applies an import quota of X2, meaning that the Foreign firm cannot sell any more than that amount. a. To achieve export sales of X2, what is the highest price that the Foreign firm can charge?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

sub= 24 help

6. In this problem, we analyze the effects of an import quota applied
by a country facing a Foreign monopolist. In Figure 9-7, suppose
that the Home country applies an import quota of X2, meaning
that the Foreign firm cannot sell any more than that amount.
a. To achieve export sales of X2, what is the highest price that the
Foreign firm can charge?
b. At the price you have identified in part (a), what is the Home
consumer surplus?
c. Compare the consumer surplus you identify in part (b) with the
consumer surplus under free trade. Therefore, outline in Figure
9-7 the Home losses due to the quota. Hint: Remember that there
is no Home firm, so you do not need to take into account Home
producer surplus or tariff revenue. Assume that quota rents go to
Foreign firms.
d. Based on your answer to (c), which has the greater loss to the
Home country-a tariff or a quota, leading to the same level of
sales X2 by the Foreign firm?
Figure 9-7
Price
Increase in P
is less than t,
the increase
in MC
d
e
P3 = P2 - t
MC* + t
Increase in
MC due to
tariff, t
MC*
A
MR
Foreign exports

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