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

Question

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 Qd = 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). and foreign-produced maple syrup

Explanation / Answer

Individual domestic producers' supply function can be set as P = MC = Domestic Quantity Since there are 25 identical firms; Total domestic supply: Quantity Supplied = 25P P = Quantity Supplied/25 The market price will be equal to the World price of $ 12 Since the Market demand = 1040 - P Quantity demanded = 1040 - 12 Quantity demanded = 1028 Domestic producers supply = 25P Domestic producers supply = 25 * 12 Domestic producers supply = 300 units Since the market demand is 1028 while the domestic producers only supply 300 units, the rest of the units would be purchased from foreign producers 728(1028-300)

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