Reference no: EM13967485
Cost of Import Tariffs
Topo Gigo Imports, Ltd., located in San Francisco, California, is an importer and distributor of a leading Japanese-made desktop dry copier. The U.S. Commerce Department recently told the company that it will be subject to a new 5.75% tariff on the import cost of copiers. Topo Gigo is concerned that the tariff will slow its sales, given the high- ly competitive nature of the copier market. Relevant market demand and marginal revenue relations are as follows:
P = $13,800 - $0.23Q
MR = DTR/DQ = $13,800 - $0.46Q
Topo Gigo's marginal cost per copier equals the import cost of $8,000 per unit, plus 15% to cover transportation, insurance, and related selling expenses. In addition to these costs, Topo Gigo's fixed costs, including a normal rate of return, come to $15 million per year.
A. Calculate Topo Gigo's optimal price/output combination and economic profits before imposition of the tariff.
B. Calculate Topo Gigo's optimal price/output combination and economic profits after imposition of the tariff.
C. Compare your answers to parts A and B. Who pays the economic burden of the import tariff?
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