Assume a Canadian lumber firm is selling wood into the United States at a lower price than in Canada. To produce more wood, the lumber company has to cut trees further away from roads, and therefore each additional tree costs more to cut than the last.
a) Using a graph, show where the firm initially prices in the two markets.
b) The U.S. lumber industry files a petition with the U.S. Department of Commerce arguing that the Canadian firm is dumping. After pressure from the U.S. government, the Canadian firm agrees to charge at least the same price in the U.S. market as it is charging in Canada. On the same graph as in part (a), illustrate where the firm now sets its price, in both Canada and the United States when it sets the same price across both markets. Explain why.
c) Describe who wins and who loses from the dumping petition (consider consumers in Canada and the United States, producers in the United States, and the firm itself).
d) How does your answer to part (b) change if the firm's marginal cost is constant?