Consider a competitive market served by many domestic and foreign firms.
The domestic demand for these firms’ product is Qd
600 2P. The supply function of the domestic firms is QSD = 200 P, while that of the foreign firms is QSF 250.
a. Determine the equilibrium price and quantity under free trade.
b. Determine the equilibrium price and quantity when foreign firms are constrained by a 100-unit quota.
c. Are domestic consumers better or worse off as a result of the quota?
d. Are domestic producers better or worse off as a result of the quota?