Suppose that only one firm, Big Foot, sells footballs in the country and international

trade of footballs including both exporting and importing is prohibited by government

due to Big Foot's successful lobby. The following equations indicates Big Foot's

market demand and total cost:

Demand: P = 5-0.5Q

Total Cost: TC = 1.5 + 0.5Q + 0.25 Q2

where Q is quantity (in 1000) and P is the price measured in dollars.

(i) Determine how many footballs Big Foot chooses to produce, the price it will set

for its product and its expected profit. Illustrate your analysis with a proper

market diagram.

(ii) Evaluate the size of deadweight loss cause by monopoly status of Big Foot.

Suppose that the parliament passed a new law that not only allows everyone to sell footballs but also opens international trade of footballs. Suppose further that the market demand in the country remains the same while the price of football in the competitive global market is $3 including shipping and importation fee.

Analyse whether the country will import or export footballs after the

deregulation. Predict the changes in Big Foot's short-run and long-run profit after the market becomes perfectly competitive.