Consider two identical countries (H and F) with the same individual firm's inverse demand function: P₁ = A - Bq₁. Firms differ in their marginal costs, c. Firms in country I want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production costc, in the domestic market (7), export market (*) and the profit if undertaking FDI (7) in terms of A, B, t, F and c. (b) Based on our discussion in class, low - c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI. i 3 1. Consider two identical countries (H and F) with the same individual firm's inverse demand function: P = A - Bqi. Firms differ in their marginal costs, c₁. Firms in country H want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production cost c, in the domestic market (7), export market (7) and the profit if undertaking FDI (F) in terms of A, B, t, F and c₁. (b) Based on our discussion in class, low-c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI.
Consider two identical countries (H and F) with the same individual firm's inverse demand function: P₁ = A - Bq₁. Firms differ in their marginal costs, c. Firms in country I want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production costc, in the domestic market (7), export market (*) and the profit if undertaking FDI (7) in terms of A, B, t, F and c. (b) Based on our discussion in class, low - c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI. i 3 1. Consider two identical countries (H and F) with the same individual firm's inverse demand function: P = A - Bqi. Firms differ in their marginal costs, c₁. Firms in country H want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production cost c, in the domestic market (7), export market (7) and the profit if undertaking FDI (F) in terms of A, B, t, F and c₁. (b) Based on our discussion in class, low-c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:Consider two identical countries (H and F) with the same individual firm's inverse demand function:
P₁ = A - Bq₁. Firms differ in their marginal costs, c. Firms in country I want to sell their products in
Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the
firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms
with marginal production costc, in the domestic market (7), export market (*) and the profit if
undertaking FDI (7) in terms of A, B, t, F and c. (b) Based on our discussion in class, low - c firms are
more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI.
i
3
1. Consider two identical countries (H and F) with the same individual firm's
inverse demand function: P = A - Bqi. Firms differ in their marginal costs, c₁. Firms
in country H want to sell their products in Country F through export or horizontal FDI.
Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake
FDI, the firm needs to pay a fixed cost, F.
(a) Solve the profit function for firms with marginal production cost c, in the domestic
market (7), export market (7) and the profit if undertaking FDI (F) in terms
of A, B, t, F and c₁.
(b) Based on our discussion in class, low-c firms are more likely to participate FDI. Solve
the cutoff marginal cost for undertaking FDI.
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