Reference no: EM1374336
PROBLEM I
ABC Corporation is a small Canadian Corporation that sells staples in Canada, which is a very competitive market. The staples can be classified as a standard commodity, with stores viewing staples as identical to those supplied through other companies.
Recent news has indicated that 1) due to the growing Canadian economy, the overall demand for staples will by 3 percent and 2) the overall market supply of staples will decrease by 3 percent because of the exit of foreign competitors.
Assuming these things, what should ABC Corp do with its production? Explain.
PROBLEM II
In the late 1990s, ABC Country imported more than 60,000 tons of product X at $3.30 per lb, from Corporation A, because it was not produced in the country. However, in 2005, Corporation B (a domestic corporation in ABC Country) began producing product X, which resulted in the worldwide production capacity of product X doubling.
Both Corporation A and Corporation B marginal cost of producing and distributing product X is $1.40 per lb and demand is constant at Q = 416 â?" 160P (in millions of lbs).
Shortly after Corporation B entered the product X market, the worldwide price dropped to $1.40. By 2009, however, the price of product X went back to $3.30 per lb.
Using theories of macroeconomics, explain what happened in the market and provide applicable calculations to support you answer.
PROBLEM III
Assume that the following:
Corporation A and Corporation B are the only two car manufacturers in a given market. Fortunately for Corporation A, it not only has a patent that allows it to manufacturer cars faster than Corporation B, and, at a lower cost, but it was also able to choose its profit-maximizing output level in the market, first.
The inverse demand function for cars is P = 8000 â?" 40(Q).
Corporation A's costs Ca (Qa) = 400Qa
Corporation B's costs Cb(Qb) = 800Qb
Explain whether or not it would be profitable for Corporation A to merge with Corporation B (show calculations as appropriate).
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