16.7 Universal Fur is located in Clyde, Baffin Island, and sells high-quality fur bow ties throughout the world at a price of $5 each.

The production function for fur bow ties (q) is given by q ¼ 240x % 2x2

, where x is the quantity of pelts used each week. Pelts are supplied only by Dan’s Trading Post, which obtains them by hiring Eskimo trappers at a rate of $10 per day. Dan’s weekly production function for pelts is given by x ¼ ffi l

p , where l represents the number of days of Eskimo time used each week.

a. For a quasi-competitive case in which both Universal Fur and Dan’s Trading Post act as price-takers for pelts, what will be the equilibrium price (px) and how many pelts will be traded?

b. Suppose Dan acts as a monopolist, while Universal Fur continues to be a price-taker. What equilibrium will emerge in the pelt market?

c. Suppose Universal Fur acts as a monopsonist but Dan acts as a price-taker. What will the equilibrium be?

d. Graph your results, and discuss the type of equilibrium that is likely to emerge in the bilateral monopoly bargaining between Universal Fur and Dan.