This problem asks you to consider the effects of market share targets. Assume that there is a domestic competitive supply in Japan. The Japanese supply curve is given by S(P) = P. The foreign supplier (from the U.S.) has market power over residual demand. He has the same marginal costs as the Japanese firm's supply function. Total demand in Japan is given by: P = 10 - Q. You do not need to calculate numbers, you may draw a diagram to scale, or calculate, or both and give intuition. 

a. What is the free trade import level and level of domestic production? 

b. What is the market share of the foreign (US) firm? Why is it less than that of the Japanese firms despite having the same marginal costs as they do collectively? 

C. Suppose that the Japanese government promises the U.S. firm its current market share. Derive the residual demand curve facing the U.S. firm. 

d. What do you predict the U.S. firm will charge now? What will prices be? What is the effect on Japanese welfare?

Answer rating: 100% (QA)

here is domestic competitive Supply in SP PU Japem The supply curve is Foreign Supp... View the full answer