A) Suppose the market for semiconductors in the U.S. is characterized by: D = 20

Question

A) Suppose the market for semiconductors in the U.S. is characterized by: D = 200 – 40P [Demand]

S = 40 + 40P [Supply]
The market for semiconductors in the rest of the world is characterized by:

D = 160 – 40P [Demand] S = 80 + 40P [Supply]

Suppose the U.S. government imposes a quota of 32 units on its imports. Calculate the magnitude of the deadweight loss resulting from the quota under the assumption that the U.S. is a small open economy.

B) Consider the following predation game involving an incumbent and a potential

entrant. Payoffs are written with the potential entrant’s profits listed first and the incumbent’s

listed second. The profit numbers represent discounted values over the life of the firms.

i) What is the equilibrium of this game?

Explanation / Answer

A) Suppose the market for semiconductors in the U.S. is characterized by: D = 20

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