Problem
Suppose that the home and foreign firms are engaged in Cournot competition in the home market. Illustrate the free trade equilibrium, and answer:
a) Suppose that a VER is negotiated with the foreign firm, so that it agrees to not sell more than its free-trade quantity. What is the effect on the equilibrium?
b) Suppose that the VER is negotiated at below the free trade quantity. Show the effect on the equilibrium.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.