PARTIAL EQUILIBRIUM MODEL with MONOPOLY

(3 points) (a) Suppose we have a domestic monopolist with demand: P = 120-1/3 Q; marginal cost MC = 1/3 Q. Show the resulting equilibrium price and quantity as well as consumer and producer surplus in Autarchy. HOME DEMAND HOME MC (5 points) (b) Now suppose we have free-trade with the home monopolist selling into a perfectly competitive world market where the world price is $30. Show the quantity traded (QP- Q5) and change in social surplus (CS + PS) with free trade. Explain the basis for the Gains From Trade. (2 points) (c) Does monopolist support opening to trade? Give the intuition.6 (3 points) (d) Would the Home government wish to impose an import tariff given the world price of $30? Explain fully. (4 point) (e) Now suppose it was a foreign monopolist selling into the domestic market with P = 120- 1/3 Q and foreign marginal cost MC = 1/3 Q. Show that, now, the Home government wishes to impose a tariff on the imports. What is the optimal tariff? (3 points) (f) Is a quota equivalent to a tariff in this case of a Foreign Monopolist? That is, can the Home government replicate the optimal tariff with a quota? Explain/show