Q. The world is composed of two economies: the European Union and the United States. One of the European firms has a global monopoly in producing widgets. The fixed costs of this industry are €450 and each additional widget costs €20 to produce.
Demand for the widgets in the United States is given by the equation: Q = 120 - P
1. Determine the price and quantity that will be produced by the monopolist (show your calculations). What is the profit being made?
2. Draw a graph presenting the results you obtained in part 1. Be sure to label all the curves and the intersection points and to display the area corresponding to the economic profit.
3. The US put a specific tariff of €10 on European widgets. Calculate the new equilibrium quantity and price as well as the new Monopoly's profit.
4. On a new graph, show the consumer surplus, the tax revenue and the monopoly's profit after the import tariff.
5. Would it be possible that this measure could improve US aggregate welfare?