Question 5 (30 marks). (Buy and sell Maple Syrup in a competitive international market) The Canadian...

  

Transcribed Image Text:

Question 5 (30 marks). (Buy and sell Maple Syrup in a competitive international market) The Canadian demand for maple syrup is captured by the function Qa= 1040 - p, where p is the market price for a jar of maple syrup. There are currently 25 identical profit- maximizing firms in Canada producing maple syrup, mostly in the region of Quebec. Each firm faces the cost function TC(q) = 128 +0.5Q². Canadian consumers consider domestic and foreign-produced maple syrup identical. Currently Canadian consumers have access to a huge supply of maple syrup from abroad for the price of $12 per jar (think of the worldwide supply of maple syrup jars as a horizontal curve at p = 12). (a) Write down an expression for the supply curve for an individual domestic maple syrup producer. If there is perfectly free international trade in maple syrup, what will be the market price of a jar be in Canada? How many maple syrup jars will be purchased in Canada.? How many of those will be imported from abroad? (5 marks) (b) What will be the profits of each domestic maple syrup producer? What will be the total profits earned by firms in the Canadian domestic maple syrup industry? Assume, for now, that the number of domestic producers remains fixed at 25. What do you predict would happen to the Canadian domestic maple syrup industry in the long run? (5 marks) (c) Suppose the Canadian government passes a dramatic new trade bill, the Canadian Maple Syrup Protection Act outlawing all imports of foreign-made maple syrup. If the number of domestic maple syrup producers remain fixed at 25, what will be the new market price of a maple syrup jar? How many maple syrup jars will be purchased in Canada? (5 marks) (d) What will be the profits of each domestic producer after the new law is passed? What is the total increase in profits in the domestic maple syrup industry as a result of this new trade law? Depict graphically the change in consumer surplus for maple syrup buyers in Canada as a result of this policy as compared to your answers in (a). Under which scenario will consumer surplus be larger? (10 marks) (e) Assuming that the law described in (d) remains in force, but that there is free entry and exit in the domestic maple syrup industry over time, what do you predict will be the long-run market equilibrium price? How many maple syrup jars will be sold in Canada.? How many maple syrup producing firms will there be in the Canada in the long run? (5 marks) Question 5 (30 marks). (Buy and sell Maple Syrup in a competitive international market) The Canadian demand for maple syrup is captured by the function Qa= 1040 - p, where p is the market price for a jar of maple syrup. There are currently 25 identical profit- maximizing firms in Canada producing maple syrup, mostly in the region of Quebec. Each firm faces the cost function TC(q) = 128 +0.5Q². Canadian consumers consider domestic and foreign-produced maple syrup identical. Currently Canadian consumers have access to a huge supply of maple syrup from abroad for the price of $12 per jar (think of the worldwide supply of maple syrup jars as a horizontal curve at p = 12). (a) Write down an expression for the supply curve for an individual domestic maple syrup producer. If there is perfectly free international trade in maple syrup, what will be the market price of a jar be in Canada? How many maple syrup jars will be purchased in Canada.? How many of those will be imported from abroad? (5 marks) (b) What will be the profits of each domestic maple syrup producer? What will be the total profits earned by firms in the Canadian domestic maple syrup industry? Assume, for now, that the number of domestic producers remains fixed at 25. What do you predict would happen to the Canadian domestic maple syrup industry in the long run? (5 marks) (c) Suppose the Canadian government passes a dramatic new trade bill, the Canadian Maple Syrup Protection Act outlawing all imports of foreign-made maple syrup. If the number of domestic maple syrup producers remain fixed at 25, what will be the new market price of a maple syrup jar? How many maple syrup jars will be purchased in Canada? (5 marks) (d) What will be the profits of each domestic producer after the new law is passed? What is the total increase in profits in the domestic maple syrup industry as a result of this new trade law? Depict graphically the change in consumer surplus for maple syrup buyers in Canada as a result of this policy as compared to your answers in (a). Under which scenario will consumer surplus be larger? (10 marks) (e) Assuming that the law described in (d) remains in force, but that there is free entry and exit in the domestic maple syrup industry over time, what do you predict will be the long-run market equilibrium price? How many maple syrup jars will be sold in Canada.? How many maple syrup producing firms will there be in the Canada in the long run? (5 marks)

Answer rating: 100% (QA)

a Total cost function is given by TCq 128 050 Now it is known that in perfect competitive ... View the full answer