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Consider two identical countries (H and F) with the same individual firm's inverse demand function: P₁ = A - Bq₁. Firms differ in their marginal costs, c. Firms in country I want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production costc, in the domestic market (7), export market (*) and the profit if undertaking FDI (7) in terms of A, B, t, F and c. (b) Based on our discussion in class, low - c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI. i 3 1. Consider two identical countries (H and F) with the same individual firm's inverse demand function: P = A - Bqi. Firms differ in their marginal costs, c₁. Firms in country H want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production cost c, in the domestic market (7), export market (7) and the profit if undertaking FDI (F) in terms of A, B, t, F and c₁. (b) Based on our discussion in class, low-c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI.

Consider two identical countries (H and F) with the same individual firm's inverse demand function: P₁ = A - Bq₁. Firms differ in their marginal costs, c. Firms in country I want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production costc, in the domestic market (7), export market (*) and the profit if undertaking FDI (7) in terms of A, B, t, F and c. (b) Based on our discussion in class, low - c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI. i 3 1. Consider two identical countries (H and F) with the same individual firm's inverse demand function: P = A - Bqi. Firms differ in their marginal costs, c₁. Firms in country H want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production cost c, in the domestic market (7), export market (7) and the profit if undertaking FDI (F) in terms of A, B, t, F and c₁. (b) Based on our discussion in class, low-c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI.

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section9.3: The Arguments For Restricting Trade
Problem 3QQ
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Consider two identical countries (H and F) with the same individual firm's inverse demand function: P₁ = A - Bq₁. Firms differ in their marginal costs, c. Firms in country I want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production costc, in the domestic market (7), export market (*) and the profit if undertaking FDI (7) in terms of A, B, t, F and c. (b) Based on our discussion in class, low - c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI. i 3 1. Consider two identical countries (H and F) with the same individual firm's inverse demand function: P = A - Bqi. Firms differ in their marginal costs, c₁. Firms in country H want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production cost c, in the domestic market (7), export market (7) and the profit if undertaking FDI (F) in terms of A, B, t, F and c₁. (b) Based on our discussion in class, low-c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI.
Transcribed Image Text:Consider two identical countries (H and F) with the same individual firm's inverse demand function: P₁ = A - Bq₁. Firms differ in their marginal costs, c. Firms in country I want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production costc, in the domestic market (7), export market (*) and the profit if undertaking FDI (7) in terms of A, B, t, F and c. (b) Based on our discussion in class, low - c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI. i 3 1. Consider two identical countries (H and F) with the same individual firm's inverse demand function: P = A - Bqi. Firms differ in their marginal costs, c₁. Firms in country H want to sell their products in Country F through export or horizontal FDI. Firms need to pay the unit trade cost t when exporting. If the firm chooses to undertake FDI, the firm needs to pay a fixed cost, F. (a) Solve the profit function for firms with marginal production cost c, in the domestic market (7), export market (7) and the profit if undertaking FDI (F) in terms of A, B, t, F and c₁. (b) Based on our discussion in class, low-c firms are more likely to participate FDI. Solve the cutoff marginal cost for undertaking FDI.
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