Again with the Bertrand oligop

Again with the Bertrand oligopoly of Question 6, suppose that Home provides the H firm with a $1 per transistor export subsidy.
(a) Analyze the effect on both firms’ sales and profits, as well as consumer surplus.
(b) Does this subsidy improve Home welfare? If the answer is different from the answer in the Cournot case (Question 5), explain why.
(c) Now, add transport costs to the model. Suppose that each firm needs to pay a 50 ¢ per transistor transport cost to sell in the other country’s market. How does this change the analysis of the $1 export subsidy? In particular, what is the effect of the subsidy on Home welfare?

 

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