The Nippon Switch Corporation is an importer and distributor of Japanese packet switches, special routing devices that direct data traffic to various computers on a large private telecommunications network for companies like GM, Sears and 3M. The U.S. Commerce Department recently informed the company that it would be subject to a new 35 % tariff on the import cost of computer switch devices. The company is concerned that the tariff will slow its sales growth, given the highly competitive nature of the packet switch market. The inverse market demand relationship is P = $400 - $0.0035Q. The company’s marginal costs equal import costs of $100 per unit, plus $20 to cover transportation, insurance and selling fees. In addition, the company’s fixed costs amount to $250,000 per year.
Part a Calculate the price / output combination an economic profits prior to the imposition of the tariff.
Part b Calculate the price / output combination an economic profits after the imposition of the tariff.
Part c Who pays the economic burden of the import tariff?