Economica AFC — Dumping Game

ACT 1

The Breakthrough You are the CEO of Economica — Oberland's only algae fuel cell producer

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Your Story Begins

A Scientist Walks Into Your Office

You are the CEO of Economica, a biotech startup based in the small nation of Oberland. Your lead researcher has just achieved a major scientific breakthrough — a commercially viable Algae Fuel Cell (AFC) that converts algae biomass directly into clean electricity.

The R&D required an enormous fixed investment. In fact, the upfront cost is so high that only Economica can afford to produce AFCs in Oberland — you are the sole domestic producer. You face a downward-sloping demand curve and must decide how many units to produce.

Oberland Market Data

Your economics team estimates the following for the Oberland AFC market:

Fixed Cost = $800 MC = $10/unit (constant) Local Demand: P* = 50 − Q/2 MR* = 50 − Q

Find Economica's optimal production in Oberland:

Step 1 of 3 — Profit-Maximizing Output

As a monopolist, Economica sets MR* = MC*. Solve for Q*.

Q* =

ACT 2

The Export Proposal Your export director sees an opportunity in the Cocoland market

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Message from your Export Director

"We Can Sell AFCs Abroad at $15"

Your export director enters with a proposal: "There's strong demand for AFCs in the Cocoland market. However, several large firms in other countries also produce AFCs — so the Cocoland export market is effectively perfectly competitive. We are a price taker there. The going export price is $15 per unit, and we estimate we can sell 20 units in that market."

You glance at the numbers. The export price of $15 is well below your local price of $30. It's even below your average cost. Should you still export?

Export Market Data

Export price P = $15 (price taker) Export quantity Q_X = 20 units MC = $10 (same as before)

Analyze the export decision:

Step 1 of 3 — Is Exporting Worth It?

Each exported unit earns P=$15 and costs MC=$10 to produce. What is the contribution margin (profit per extra unit exported)?

P − MC = $

ACT 3

The Lawyer's Warning Cocoland market producers are filing a complaint

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Urgent — Legal Alert

"We May Be Facing an Antidumping Investigation"

Your phone rings. It's your legal team: "Cocoland market producers have filed a complaint with their trade authority, claiming Economica is dumping AFCs into their market. Under WTO rules, dumping is defined in two ways — either the export price is below your domestic price, or it is below your average cost of production. If either test is satisfied, they can impose an antidumping duty."

Your lawyer continues: "We need to run both tests right now and calculate the dumping margin — that's what determines the maximum duty they can impose."

The Two Dumping Tests (WTO Rules)

Test 1: Is the export price below the domestic price? P < P*?

Test 2: Is the export price below the average cost of production? P < AC?

Only one test needs to be satisfied for a dumping finding. The dumping margin = P* − P (using Test 1).

Export price P = $15 Domestic price P* = $30 AC (with exports) = $800 + $10×60) / 60 = $23.33

Run the dumping tests:

Step 1 of 3 — Test 1: Price vs. Domestic Price

Is Economica selling AFCs in the Cocoland market below its domestic price in Oberland?

ACT 4

The Antidumping Duty Cocoland government imposes a duty equal to the dumping margin

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Official Notice

Cocoland Imposes an Antidumping Duty of $15

The Cocoland government's trade authority rules in favor of the domestic producers. It imposes an antidumping duty of $15 per unit — exactly equal to the dumping margin — on all AFC imports from Economica. This means Economica must now pay $15 to the Cocoland government for every unit it exports there.

Your lawyer is back: "Under the duty, if we still want to sell at $15 in the Cocoland market, we only net $15 − $15 = $0 per unit after paying the duty. That's below our MC of $10. We need to figure out what to do."

New Export Economics

Antidumping duty t = $15/unit Economica nets: P − t = $15 − $15 = $0/unit MC = $10/unit

Analyze the impact of the duty:

Step 1 of 3 — Net Revenue After Duty

After paying the $15 duty, Economica nets $0 per unit exported. Compare this to MC = $10. Should Economica continue exporting?

ACT 5

The Full Picture Dumping is rational — but antidumping duties are a double-edged sword

Scenario	Economica Profit	Exports to Cocoland	Cocoland Consumer Price	Cocoland Govt Revenue
Oberland only (no export)	$0	0	—	—
With exports (dumping)	$100	20 units	$15 (cheap!)	$0
After antidumping duty	$0	0 units	No imports	$0 (no trade)

🎓 Key Takeaways

1. Why dumping happens: Fixed costs create a wedge between AC and MC. Once FC is covered by domestic sales, exporting at any price above MC adds profit — even if that price is far below AC. Economica exports at $15 because $15 > $10 = MC.

2. Two tests, one finding: Under WTO rules, dumping is found if P < P* (domestic price) or P < AC. Both conditions are satisfied here ($15 < $30 and $15 < $23.33), so the antidumping duty is legally justified.

3. The antidumping paradox: Cocoland consumers were benefiting from cheap AFC imports at $15. The antidumping duty eliminated those imports entirely — protecting Cocoland producers but harming Cocoland consumers. Antidumping policy is not always welfare-improving for the importing country as a whole.

4. Strategic use of antidumping: Because the WTO allows antidumping duties whenever the two tests are met, domestic firms often use these complaints as a protectionist tool — even when the foreign firm's pricing behavior is economically rational. This is why antidumping provisions are considered one of the most overused instruments in trade policy.

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