Question: Defend The Rim DTR, is the only firm that produces and sells basketballs in Guernsey. Currently, trading with other countries is not allows. The following equations describe the market for basketballs in Guernsey, where Q is the equality of basketballs per month and P is the price.
P = 40 - 0.5 Q • MR = 40 - Q • TTC = 30 + 4Q + 0.5 Q2 • MC = 4 + Q
a. How many basketballs does DTR produce? At what price are they sold and what is DTR's profit at that price?
b. What price and quantity of basketballs would maximize social welfare?
c. Calculate the deadweight loss from DTR's profit-maximizing behavior. Suppose DTR's decides to pay its sales manager a bonus salary of $6 per basketball sold.
d. Does this bonus salary have any effect on DTR's marginal cost and/or total cost functions? If no, what is the new-marginal cost function?
e. With the bonus salary, how many basketballs does DTR's produce, and at what price are they sold?
f. With the bonus salary, what price and quantity of basketballs would maximize social welfare?
g. Calculate the deadweight loss from DTR's profit maximizing behavior. Consider that after DTR provides a bonus wage to its sales manager, the government of Guernsey decides to allow free trade. Currently the world price of basketballs is $32 and in this competitive world market, DTR is now a price taker.
h. Will DTR export or will Guernsey import basketballs?
i. How many basketballs does DTR produce? At what price are they sold and how many basketballs are bought domestically?