For the model of Question 3, suppose that the Home government convinces the foreign government to impose a VER on the F firm.
(a) Suppose that the VER restricts F's exports to be no more than its free-trade exports. Does this change the equilibrium? Explain. If necessary, compute the new equilibrium and diagram it on a reaction-function diagram.
(b) Now, suppose that the VER restricts F's exports to be no more than half of its free trade exports. Does this change the equilibrium? Compute the new equilibrium quantities and price, and show the equilibrium on a reaction-function diagram.