Enunciados hoja subsidios PDF

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TOPICS IN INDUSTRIAL ORGANISATION Subsidies

1. Suppose that there only two civilian aircraft manufacturers in the entire world, and that the world consists of two countries, the US and the EU. Suppose further that each firm is a profit maximizer and has a binary choice: develop (and produce) or Don't develop (and don't produce). The following table indicates the profit levels (in billions) of each firm under the four possible market outcomes.

a) Suppose that the EU government promises Airbus to contribute 18 billion if Airbus develops and produces the new airplane. Is there exists a certain amount of US subsidy to Boeing that would deter Airbus from developing and producing the new airplane? b) Is this subsidy optimal from the perspective of EU taxpayers?...