Question

Suppose that the marginal cost of an additional ton of steel produced by Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. Suppose that this firm is a pure monopolist both in Japan as well as in abroad. If the price elasticity of demand for steel is smaller abroad than it is in Japan, which of the following will be correct?

a. the Japanese firm will sell more steel abroad than they will sell in Japan.
b. the Japanese firm will sell more steel in Japan than they will sell abroad.
c. the Japanese firm will sell steel at a lower price abroad than at home.
d. the Japanese firm will sell steel at a higher price abroad than at home.
e. None of the above,

Answer 1

d. the Japanese firm will sell steel at a higher price abroad than at home.

Step-by-step explanation:

Since the price elasticity of demand is higher in Japan than abroad, a slightly higher price will not affect exports negatively. Corporations will always try to maximize their profits and if they will try to sell their products at the highest possible price. If the price elasticity of demand is high, a high price will decrease total sales significantly, but if the price elasticity of demand, is low, a higher price has little influence on the quantity sold.