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 = 10 - Q
Marginal Revenue: MR = 10 - 2Q
Total Cost TC = 3 + Q + 0.5 Q2
Marginal Cost: MC = 1 + Q,
where 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 in a competitive market What happens to domestic production of soccer balls? To domestic