Question

An American pharmaceutical firm wants to export to UK without violating the Anti-Dumping statute. Given the following data, what is the minimum price that the firm has to charge to UK consumers? Show the arithmetic.
Fixed Cost: $600,000
Variable Cost: $10
Total Weekly Manufacturing Capacity: 50,000 units
US Domestic Sales: 25,000 units US Domestic Price: 20 per unit
Number of units to be sold in UK: 25,000 units

Answer 1

Dumping refers to the process under which a company exports a product to any other country at a price lower than the price it is charging in its own home market. UK's Anti-Dumping statute is a protectionist tariff that the UK government has imposed on foreign imports not to be priced below fair market value.

For Total Weekly Manufacturing Capacity: 50,000 units

        Fixed Cost: $600,000

Add: Variable Cost: $500,000

        Total Cost= $1,100,000

Cost per unit= $1,100,000 / 50,000

= $ 22

Since, the US Domestic Sales of 25,000 units is made at $ 20 per unit it means that the company is selling below the cost and is incurring losses. Therefore, it is evident that the sales are made just to minimize the losses.

So, as per the anti dumping statues, the company must charge $20 only per unit for all 25,000 units from the UK consumers.