International Production You have two factories that produce identical products (lets say plastic forks). The plants and equipment are fully depreciated and there are no fixed costs. Note, this is a competitive market. As a result, your cost basis in the USA is TC usa = 16Y usa^2 your cost basis in CHINA is TC china = 2Y china^2 The demand for plastic forks is Y=72 Note, the production then becomes Y = Y usa + Y china = 72 a. With no restrictions (competitive markets exist) how many plastic forks will the USA produce? b. How much would China need to lower their cost to produce all of the 72 plastic forks? c. How much of a subsidy would the firm need to produce all 72 plastic forks in the USA, given the original TC functions?
International Production
You have two factories that produce identical products (lets say plastic forks). The plants and equipment are fully
depreciated and there are no fixed costs. Note, this is a competitive market.
As a result, your cost basis in the USA is TC usa = 16Y usa^2
your cost basis in CHINA is TC china = 2Y china^2
The demand for plastic forks is Y=72
Note, the production then becomes Y = Y usa + Y china = 72
a. With no restrictions (competitive markets exist) how many plastic forks will the USA produce?
b. How much would China need to lower their cost to produce all of the 72 plastic forks?
c. How much of a subsidy would the firm need to produce all 72 plastic forks in the USA, given the original TC functions?
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