[Solved] Welfare effects of international joint ventures Suppose Jeonsangi of Korea and American Computer Company of the United States
Welfare effects of international joint ventures Suppose Jeonsangi of Korea and American Computer Company of the United States are the only two firms producing computers for sale in the U.S. market. Each firm realizes constant long-term costs so that the average total cost (ATC) equals the marginal cost (MC) at each level of output. Thus, MCo = ATCO is the long-term market supply schedule for computers. Suppose Jeonsangi and American Computer Company operate as competitors, and the cost schedules of each company are MC0 = ATC0 = $70. On the following graph, use the grey point (star symbol) to identify the competitive market equilibrium. Then, use the green triangle (triangle symbols) to identify consumer surplus in this case.
Note: Select and drag the point from the palette to the graph. Dashed drop lines will automatically extend to both axes. Then select and drag the shaded region from the palette to the graph. To resize the shaded region, select one of the points and move to the desired position.
As a result of the joint venture, consumer surplus decreases and producer surplus increases. On the consumer side, some of the lost consumer surplus is transferred to the joint venture in the form of producer surplus, but the consumption effect still causes a deadweight welfare loss for the U.S. economy. On the producer side, while part of the gain in producer surplus is a transfer from consumer surplus, the rest is the result of the cost- reduction effect. On the previous graph, use the purple rectangle (diamond symbols) to shade the area of new producer surplus that was previously consumer surplus before the joint venture. Then use the grey rectangle (star symbols) to shade the area of new producer surplus as a result of the cost-reduction effect. Finally, use the black area (plus symbol) to indicate the deadweight loss caused by the joint venture. Note: Select and drag the fill area point from the palette to the graph. To fill in regions on the graph, merely drop the fill area point on the desired region. because the cost-reduction effect is Based on your analysis, from a welfare perspective, the formation of JV Company is than the deadweight loss (or consumption effect).
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