(25 points) A bakery uses both domestically-sourced If the bakery buys d cartons of domestically-sourced cartons...

Transcribed Image Text:

(25 points) A bakery uses both domestically-sourced If the bakery buys d cartons of domestically-sourced cartons costs 45,5 32 dollars. If the bakery imports i cartons of eggs, each imported carton costs 3 32 dollars. In total, the bakery will bake 53 and imported eggs. eggs, each of these (158 +84) i) cakes and sell each cake for $16. The government imposes an import quota of Q cartons (i.e. the bakery cannot import more than Q cartons of eggs). a) (4 points) Does the price per carton of domestic eggs rise or fall as the bakery buys more of them? Justify your answer mathematically. With economic intuition, why might the price change this way? b) (4 points) Formally write the bakery's profit maximization problem. c) (5 points) List the cases implied by complementary slackness, as well as their equations and checks. d) (6 points) When does importing below the quota yield a critical point? For the rest of the problem, suppose the firm optimally imports exactly the quota amount. e) (4 points) How does the bakery's optimal number of domestically- sourced cartons change as the quota allowance Q falls? Justify your answer mathematically. f) (2 points) Based on your answers to the previous parts, why might domestic egg farmers lobby for a low import quota (i.e., a low Q)? (25 points) A bakery uses both domestically-sourced If the bakery buys d cartons of domestically-sourced cartons costs 45,5 32 dollars. If the bakery imports i cartons of eggs, each imported carton costs 3 32 dollars. In total, the bakery will bake 53 and imported eggs. eggs, each of these (158 +84) i) cakes and sell each cake for $16. The government imposes an import quota of Q cartons (i.e. the bakery cannot import more than Q cartons of eggs). a) (4 points) Does the price per carton of domestic eggs rise or fall as the bakery buys more of them? Justify your answer mathematically. With economic intuition, why might the price change this way? b) (4 points) Formally write the bakery's profit maximization problem. c) (5 points) List the cases implied by complementary slackness, as well as their equations and checks. d) (6 points) When does importing below the quota yield a critical point? For the rest of the problem, suppose the firm optimally imports exactly the quota amount. e) (4 points) How does the bakery's optimal number of domestically- sourced cartons change as the quota allowance Q falls? Justify your answer mathematically. f) (2 points) Based on your answers to the previous parts, why might domestic egg farmers lobby for a low import quota (i.e., a low Q)?

Answer rating: 100% (QA)

a The price per carton of domestic eggs falls as the bakery buys more of them Mathematicall... View the full answer