Suppose that demand for hats in Mushroom Kingdom is given by the linear market demand curve P = 100 Q. Mushroom Kingdom is autarkic and is served by a monopolist, Crazy Cap, that has a constant marginal cost of MC = $20, total variables costs of T V C = 20 Q and faces no fixed costs. The world price is P W and Mushroom Kingdom is able to set an import quota of M .

For 2.3 - 2.7, suppose Mushroom Kingdom opens to trade

2.6 In which scenario does Crazy Cap have the highest profit?

A (P W , M ) = (25, 0)

B (P W , M ) = (15, 0)

C (P W , M ) = (25, 20)