The average production cost per good is estimated at $5 + $15/(x + 1). The firm can currently sell 10 units at $20 per unit.
(a) What is the current total profit of the firm?
(b) How much should the firm value the opportunity to sell one extra good to a new vendor? In other words, what is the marginal cost of selling one extra good?
A new vendor offers to pay $19 for one unit. However, your other existing vendors would find out and demand the same price. What is the marginal cost and benefit of signing up this new vendor now? Should you sign up this new vendor?