8. International price discrimination Igrushka is a Russian firm, and it is the only seller of wooden dolls in Russia and France. Suppose that when the price of wooden dolls increases, French children more readily replace them with porcelain dolls than Russian children. Thus, the demand for wooden dolls in France is more elastic than in Russia. The following graphs show the demand curves for wooden dolls in Russia (DR) and France (DF) and marginal revenue curves in Russia (MRR) and France (MRP). Igrushka's marginal cost of production (MC), depicted as the grey horizontal line in both graphs, is $12, and the resale of wooden dolls from France to Russia is prohibited. Assume there are no fixed costs in production, so marginal cost equals average total cost (ATC). PRICE (Dollars per wooden doll) 40 38 32 28 24 20 16 12 Russia MC=ATC ? PRICE (Dollars per wooden doll) 40 38 32 28 24 20 18 12 France MC=ATC 4 MRR DR MR- DE 0 + 0 + + 0 2 4 6 8 10 12 14 16 18 20 0 2 QUANTITY (Millions of wooden dolls) 4 6 8 10 12 14 18 18 QUANTITY (Millions of wooden dolls) 20 Suppose that as a nondiscriminating seller, Igrushka charges the same price of $20 per wooden doll in each of the two markets. In the following table, complete the third column by determining the quantity sold in each country at a price of $20 per wooden doll. Next, complete the fourth column by calculating the total profit and the profit from each country under a single price. Price Discrimination Country Russia France Price (Dollars per wooden doll) Single Price Quantity Sold (Millions of wooden dolls) Profit (Millions of dollars) Price Quantity Sold (Dollars per wooden doll) (Millions of wooden dolls) Profit (Millions of dollars) 20 20 Total N/A N/A N/A N/A Suppose that as a profit-maximizing firm, Igrushka decides to price discriminate by charging a different price in each market, while its marginal cost of production remains $12 per toy. Complete the last three columns in the previous table by determining the profit-maximizing price, the quantity sold at that price, the profit in each country, and total profit if Igrushka price discriminates. Igrushka charges a higher price in the market with a relatively elastic demand curve. True or False: Under price discrimination, Igrushka is not dumping wooden dolls into the French market. True False

8. International price discrimination Igrushka is a Russian firm, and it is the only seller of wooden dolls in Russia and France. Suppose that when the price of wooden dolls increases, French children more readily replace them with porcelain dolls than Russian children. Thus, the demand for wooden dolls in France is more elastic than in Russia. The following graphs show the demand curves for wooden dolls in Russia (DR) and France (DF) and marginal revenue curves in Russia (MRR) and France (MRP). Igrushka's marginal cost of production (MC), depicted as the grey horizontal line in both graphs, is $12, and the resale of wooden dolls from France to Russia is prohibited. Assume there are no fixed costs in production, so marginal cost equals average total cost (ATC). PRICE (Dollars per wooden doll) 40 38 32 28 24 20 16 12 Russia MC=ATC ? PRICE (Dollars per wooden doll) 40 38 32 28 24 20 18 12 France MC=ATC 4 MRR DR MR- DE 0 + 0 + + 0 2 4 6 8 10 12 14 16 18 20 0 2 QUANTITY (Millions of wooden dolls) 4 6 8 10 12 14 18 18 QUANTITY (Millions of wooden dolls) 20 Suppose that as a nondiscriminating seller, Igrushka charges the same price of $20 per wooden doll in each of the two markets. In the following table, complete the third column by determining the quantity sold in each country at a price of $20 per wooden doll. Next, complete the fourth column by calculating the total profit and the profit from each country under a single price. Price Discrimination Country Russia France Price (Dollars per wooden doll) Single Price Quantity Sold (Millions of wooden dolls) Profit (Millions of dollars) Price Quantity Sold (Dollars per wooden doll) (Millions of wooden dolls) Profit (Millions of dollars) 20 20 Total N/A N/A N/A N/A Suppose that as a profit-maximizing firm, Igrushka decides to price discriminate by charging a different price in each market, while its marginal cost of production remains $12 per toy. Complete the last three columns in the previous table by determining the profit-maximizing price, the quantity sold at that price, the profit in each country, and total profit if Igrushka price discriminates. Igrushka charges a higher price in the market with a relatively elastic demand curve. True or False: Under price discrimination, Igrushka is not dumping wooden dolls into the French market. True False

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter11: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 13CQ

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