Suppose that there are two producers of cement in the U.S.–Holcim and Cemex. Holcim produces in the U.S. and Cemex produces in Mexico. The demand for cement is: Q(P) = 200 – P/ 2.
Holcim has total cost function T C(Q) = 10Q and Cemex has total cost function T C = 20Q, reflecting the fact that Cemex has to import cement from abroad. (a) What are the marginal costs of each firm? (b) What is Cemex’s best response given the price that Holcim is charging? Consider three cases: 1) Holcim charges a price below Cemex’s marginal cost, 2) Holcim charges a price equal to Cemex’s marginal cost, 3) Holcim charges a price above Cemex’s marginal cost. (c) What is Holcim’s best response given the price that Cemex is charging? Describe the difference between Cemex and Holicm’s best response functions. (d) What would happen if Cemex was unable to shift cement to the U.S. so Holcim was a monopolist? Specifically, what would happen to consumer surplus?