Question

Suppose the Home firm is considering whether to enter the Foreign market. Assume that the
Home firm has the following costs and demand:
Fixed costs = $140
Marginal costs = $10 per unit
Local price = $25
Local quantity = 20
Export price = $15
Export quantity = 10
a. Calculate the firm's total costs from selling only in the local market.
b. What is the firm's average cost from selling only in the local market?
c. Calculate the firm's profit from selling only in the local market.
d. Should the Home firm enter the Foreign market? Briefly explain why.
e. Calculate the firm's profit from selling to both markets.
f. Is the Home firm dumping? Briefly explain.

Answer 1

Q-A :: ANSWER ::

=> Explanation ::

=> Total Cost For Selling In Local Market ::

= Marginal Cost * Unit

= $10 * 20

= $200

So, Total cost = Variable Cost + Fixed cost

= $200 + $140

= $340

Q-B :: ANSWER ::

Average Cost = Total Cost In Local/Quantity

= $340/20

= $17

Q-C :: ANSWER ::

Profit = Total Revenue - Total Cost

= ($25 * 20 ) - $340

= $500 - $340

= $160

Q-D :: ANSWER :: No

=> Because Firms Total Cost Is Higher Than Its Profit In Foreign Market So if firm Enter In The Foreign Market They should Experience loss Because Of The High Fixed And Variable Cost So The Firma Should Not Enter In The Foreign Market

Q-E :: ANSWER :

=> Cost Per Unit = $340/20 = 17

Local Profit = (10 Unit * 25) - (10 Unit * 17)

= 250 - 170

= 80

Foreign.Profit = ( 10 Unit * $15) - (10 * 17)

= 150 - 170

= 30 (Loss)

Q-F :: ANSWER :: Yes

=> Dumping Is When Firm Sell Goods Lower Price In Foreign Market Than They Sell In Local Market Is called Dumping So This firm Sell Goods In Local At A Price Of $25 And In Foreign Market At A Price Of $15 So Here The Foreign Price Is Lower Than The Local Pricr so we Assume That The Firm Is Dumping Their Products