Quantitative restrictions in international trade under monopoly

This paper discusses the implications of quantitative restrictions in international trade for the terms of trade, domestic price ratio and outputs in the presence of monopoly in the domestic import-competing industry in a general equilibrium model. It is shown that a change in quotas has the same effects on the terms of trade and domestic price ratio under monopoly as under competition. Furthermore, the price-output relationship associated with a change in quota under monopoly may become perverse even though the production possibilities frontier is assumed to be strictly concave to the origin. The paper also derives the optimal and revenue maximizing quotas. It is demostrated that under monopoly, unlike under competition, the optimal and revenue maximizing quotas cannot be ranked uniquely.