What effects does labor migration have on the
country of immigration? The country of emigration? The world as a whole?
Table 9.9 illustrates the revenue conditions facing ABC, Inc., and XYZ, Inc., which operate as
competitors in the U.S. calculator market. Each
firm realizes constant long-term costs (MC AC)
of $4 per unit. On graph paper, plot the enterprise
demand, marginal revenue, and MC AC schedules. On the basis of this information, answer the
following questions.
a. With ABC and XYZ behaving as competitors,
the equilibrium price is $ and output
is . At the equilibrium price, U.S.
households attain $ of consumer surplus, while company profits total $ .
b. Suppose the two organizations jointly form a
new one, JV, Inc., whose calculators replace
the output sold by the parent companies in
the U.S. market. Assuming that JV operates
as a monopoly and that its costs (MC
AC) equal $4 per unit, the company’s output
would be at a price of $ , and
total profit would be $ . Compared to
the market equilibrium position achieved by
ABC and XYZ as competitors, JV as a
monopoly leads to a deadweight loss of consumer surplus equal to $ .
c. Assume now that the formation of JV yields
technological advances that result in a perunit cost of only $2; sketch the new MC
AC schedule in the figure. Realizing that JV
results in a deadweight loss of consumer surplus, as described in part b, the net effect of
the formation of JV on U.S. welfare is a gain/
loss of $ . If JV’s cost reduction was
due to the wage concessions of JV’s U.S.
employees, the net welfare gain/ loss for the
United States would equal $ . If JV’s
cost reductions resulted from changes in
work rules leading to higher worker productivity, the net welfare gain/loss for the United
States would equal $ .