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| Consider the case of a Foreign monopoly with no Home production, shown in Figure 9-7. Starting from free trade at point A, consider a $10 tariff applied by the Home government. a. If the demand curve is linear, as in Problem 6, what is the shape of the marginal revenue curve? b. How much does the tariff-inclusive Home price increase because of the tariff, and how much does the net-of-tariff price received by the Foreign firm fall? c. Discuss the welfare effects of implementing the tariff. Use a graph to illustrate under what conditions, if any, there are increases in Home welfare. |
