Figure 9.1.International Joint Venture
-Consider Figure 9.1.Assume Venture Company's formation yields new cost reductions,indicated by MC₁=AC₁,which result from wage concessions accepted by Venture Company employees.The net effect of Venture Company's formation on the welfare of the domestic economy is:

Question

Figure 9.1.International Joint Venture

-Consider Figure 9.1.Assume Venture Company's formation yields new cost reductions,indicated by MC₁=AC₁,which result from wage concessions accepted by Venture Company employees.The net effect of Venture Company's formation on the welfare of the domestic economy is:

Quizplus · Accepted Answer

The wage concessions accepted by the Venture Company employees indicate that the company is able to produce at a lower cost. This leads to a shift in the supply curve from to _{. As shown in the diagram, this leads to a fall in the price from P1 to P2. However, the total quantity of goods produced remains the same. Thus, there is a transfer of surplus from domestic producers to consumers represented by the shaded area A-B-C. Since the area C-D-E-F is greater than the area A-B-C, there is a net loss to the domestic economy of $2. Therefore, the correct answer is C.}