Answer to Question #5264 in Microeconomics for jai

Question

Basketown is a tourist village that is famous for woven baskets. Although there is only one tourist shop in the village, the shop does not act as a monopolist. Instead, the shop owner is committed to selling an efficient number of baskets to visitors. The shop can acquire baskets from either local or foreign producers which they then sell to tourists. Up to 50 baskets a day are available from local manufacturers at a cost of $5 per basket. Additionally, an unlimited number of baskets are available from foreign manufacturers at the cost of $10 per basket. The baskets made by both local and foreign producers are identical, and indistinguishable by consumers. If the demand curve for baskets is as shown in the diagram below, how much will a visitor to Basketown pay for a foreign-made basket? Demand Curve: P = 20 - (1/10) Q

Answer 1

Qd = 200 - 10P
As the baskets made by both local and foreign producers are identical, and
indistinguishable by consumers, the price will be $10 for basket and will equal
to the foreign price, as the shop does not act as a monopolist.In this case the tourists will buy 200 - 10*10 = 100 baskets.