Tariffs the Nippon Switch Corporation Is an Importer and Distributor

question 49

Essay

Tariffs. The Nippon Switch Corporation is an importer and distributor of Japanese-made packet switches, special routing devices that direct data traffic to various computers on a large private telecommunications network for companies like GM, Sears and 3M. The U.S. Commerce Department recently informed the company that it will be subject to a new 35% tariff on the import cost of computer switch devices. The company is concerned that the tariff will slow its sales growth, given the highly competitive nature of the packet switch market. Relevant market demand and marginal revenue relations are:

The company's marginal cost equals import costs of $100 per unit, plus $20 to cover transportation, insurance, and related selling expenses. In addition these costs, the company's fixed costs, including a normal rate of return, come to $250,000 per year on this product.

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Definitions:

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