John is considering starting a t-shirt company. To do so would require the purchase of a machine to imprint the t-shirts. A corporate "friend" has promised John a one-year contract for 20,000 shorts, if his price is "right". Cost = $50,000 with no resale value. The marginal cost of producing a t-shirt is $1.50.
1. Determine the lowest price John can offer for this contract?
2. What will his "friend" offer John as the price for an extension of the deal at the end of the one-year contract.