Answer
a) 3 soccer balls are made. They are sold at 7 Wilknamian dollars each. The monopolist's profit is 10.5 Wilknamian dollars.
b) Domestic production decreases, and domestic consumption increases (due to importing soccer balls).
c) Yes, this holds true.
d) Allowing trade would eventually decrease the price and make the monopoly a competitive market.
Work Step by Step
a) Please see the table. The monopolist will produce soccer balls until the marginal revenue is the same as the marginal cost. This happens when 3 soccer balls are made. Since the price is equal to $10-Q$, we can see that the price is $10-3$, or seven Wilknamian dollars.
b) Since the domestic price is less than the world price, the country will decrease production of soccer balls. However, since the world price is lower, more soccer balls will be consumed. With the increased consumption (paired with the domestic decrease in production), the country will import soccer balls.
c) Since the domestic price is more than the world price, the country will import soccer balls.
d) At a price of 6 Wilknamian dollars, four domestic soccer balls are made. This level is not the profit maximizing quantity for the monopolist. The monopolist would normally produce three soccer balls to maximize profits, so there is one soccer ball to import. Over time, more soccer balls will be imported, so the price would decrease.
