Marginal Revenue, Residual Demand Curves, Quotas and Monopolists
February 27, 2013 12:24 PM Subscribe
How do I calculate the differences in welfare for a state when an import quota is applied to an industry that is controlled by a monopolist at home, vs an industry that is perfectly competitive at home?
posted by tokaidanshi to Education (3 answers total)
I have a problem set for grad school that is asking me to calculate something that wasn't explained in class and doesn't appear to be in my textbooks as well. I am being asked to compare the differences in welfare losses to a home market when an import quota is applied to a perfectly competitive market, but I don't know how to calculate this for a market dominated by a monopolist. I'm given the home market's demand function and the marginal cost function for producers, which in the problem is the same for perfectly competitive firms and a monopolist, as well as the world price for the good. I think I need to calculate the marginal revenue function as well as a residual demand curve that would exist for the monopolist if a quota was applied, but I am not sure how to do this.
I'm not asking anyone to solve the problem for me, but could someone please point me to a book, internet resource, etc, where I can find an explanation for how to go about calculating this? I have searched around for a while now, but haven't found anything so I've turned to askmefi.