This problem asks you to consider the effects of market share targets. Assume that there is domestic competitive supply in Japan. The Japanese supply curve is given by S(P) = P: The foreign supplier (from the U.S.) has market power over residual demand. He has same marginal costs as the Japanese firms supply function. Total demand in Japan is given by: P=10-Q You do not need to calculate numbers, you may draw a diagram to scale, or calculate, or both and give intuition.
a. What is the free trade import level and level of domestic production?
b. What is the market share of the foreign firm? Why is it less than that of the Japanese firms despite having the same marginal costs as they do collectively?
c. Suppose that the Japanese government promises the U.S. firm this market share. Derive the residual demand curve facing the U.S. firm.
d. What do you predict the U.S. firm will charge now? What will prices be? What is the e⁄ect on Japanese welfare?
e. Would such a policy be desired by non Japanese producers with market power? Why?