Question

Microeconomic theory argues that it is economically rational (and profitable) to sell additional output as long as the price covers the variable costs of production. How is this relevant to the determination of whether dumping has occurred?

a) Dumping occurs when variable costs exceed the selling price.
b) Dumping occurs when the selling price covers variable costs.
c) Dumping is unrelated to variable costs.
d) Dumping occurs when fixed costs are covered.

Answer 1

In microeconomics, selling output as long as price covers variable costs is rational. Dumping involves selling below cost and can be identified if prices do not cover variable costs, potentially aiming at predatory pricing.

Step-by-step explanation:

Microeconomic theory suggests that it is economically rational to sell additional output as long as the price covers the variable costs of production. This concept is relevant to the determination of whether dumping has occurred because dumping involves selling goods at prices below those in the home market, or even below the costs of production. In the context of anti-dumping policy, if a firm is found to be selling its products overseas at a price that does not cover at least the variable costs, it can be seen as evidence of dumping, which may involve predatory pricing tactics aimed at eliminating competition before raising prices.