Please briefly evaluate the following arguments: true or false? Please explain w
ID: 1110476 • Letter: P
Question
Please briefly evaluate the following arguments: true or false? Please explain why?
(a) A foreign firm that competes in prices with a domestic firm in the domestic market suffers from facing a quota.
(b) Suppose that two firms, producing substitute but differentiated products, compete in prices. A government-imposed floor on firm 1’s price may increase firm 1’s profit.
(c) Suppose a domestic firm and a foreign firm compete in quantities in the foreign market. The domestic firm benefits from an export subsidy that induces it to expand its output.
Explanation / Answer
a) False, it is not the foreign firm but the domestic consumers who will suffer . They will suffer because with quota prices will higher and thus decline in consumption.
b) False, with price floor quantity supplied will be less than demand and hence profits will fall.
c) True, with export subsidy prices will fall in domestic country and thus consumption would be higher.