The Diagram Below Shows the Demand Curve (D) Facing a Foreign

question 27

Multiple Choice

The diagram below shows the demand curve (D) facing a foreign monopoly
Supplier of a good to home country I, the ssociated marginal revenue curve
(MR) , and the foreign monopolist's marginal cost curve (MC) , which equals the Average cost curve (AC) . If country I places a tariff of the amount T on the Import of the foreign firm's product, the MC curve shifts vertically upward by the Amount of the tariff to (MC + T) , which is also (AC + T) . Given this situation,Which one of the following statements is TRUE?

• A) The price of the product when there is no tariff is P₂.
• B) The imposition of the tariff must lead to a net decrease in welfare in country I.
• C) The imposition of the tariff leads to a net increase in welfare in country I if Area C₁C₂FG exceeds area P₁P₂AB.
• D) The imposition of the tariff leads to a net decrease in welfare in country I if Area P₁P₂AB exceeds area C₁C₂HJ.

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