Question

"Only one firm produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist’s demand, marginal revenue, total cost, and marginal cost: Demand: P=15−Q Marginal Revenue: MR=15−2Q Total Cost: TC=3+Q+0.5Q2 Marginal Cost: MC=3+Qwhere Q is quantity and P is the price measured in Wiknamian dollars.a. How many soccer balls does the monopolist produce? At what price are they sold? What is the monopolist’s profit?b. One day, the King of Wiknam decrees that henceforth there will be free trade—either imports or exports— of soccer balls at the world price of $6. The firm is now a price taker. What happens to domestic production of soccer balls? To domestic consumption? Does Wiknam export or import soccer balls?c. In our analysis of international trade in Chapter 9, a country becomes an exporter when the price without trade is below the world price and an importer when the price without trade is above the world price. Does that conclusion hold in your answers to parts (a) and (b)? Explain.d. Suppose that the world price was not $6 but, instead, happened to be exactly the same as the domestic price without trade as determined in part (a). Would anything have changed when trade was permitted? Explain."

Answer 1

Answer:

Explanation:

a) since MR=MC, then 15-2Q=3+Q. So, the monopolist produce Q=4

price P=15-Q=10-4=6

profit=6*3-TC=18-(3+4+0.5*4^2)=3

b)since the P=6=6, domestic production will stay the same. The domestic consumption will stay the same. For Wilknam, it will import soccer balls.

c)yes, it holds that Wiknam will be an importer. Because the price for domestic production is 6 which is same as the world price 6.

d)Since the price within country is the same with price out of country, and also, MC=3+Q=7>6, Wiknam will import soccer balls. The monopolist market will become a competitive market.Even though the price won't change,the product will be of high quality and so on. The market will become more equilibrium.