Problem 2: Location Choice. Dallas currently has an NBA team (the Mavericks). Demand for Mavericks games in Dallas is given by:

PD(QD) = 160 2QD Austin does not currently have an NBA team, but they would like to attract the Mavericks.

Demand for Mavericks games in Austin is given by: PA(QA) = 180 2QA

The marginal cost of production in both cities is constant at MC = 40.

2. Suppose now that cities can offer subsidies (i.e., bids) to attract the team.

a) What is the highest subsidy that Dallas would offer the team to stay?

b) What is the highest subsidy that Austin would offer the team to move?

c) Will the team move to Austin?

d) How much is the winning subsidy? e) What is the profit plus subsidy for the team?

f) What is consumer surplus minus the subsidy?