Suppose there is only 1 firm that sells coffee in the Home market. The marginal cost of the local monopolist is MC = $10. Given the price of a pound of coffee P, the demand for coffee is P = 50 - Q.

(a) Assume that the Home economy opens to trade with the rest of the world, but trade is not free: the Home government imposes an import quota of 20 pounds of coffee. The price of the pound of coffee in the world market is $5. What is the price of the pound of coffee in the Home market? What is the output of the local monopolist? (Hint. If the demand is P = A - B*Q, where A and B are some constants, then the marginal revenue of the monopolist is MR = A - 2*B*Q.)

(b) Assume that the Home government reduces import barrier, so now an import quota is 30 pounds of coffee. Calculate the new price and quantity chosen by the local monopolist.

(c) Does welfare at Home increase or fall with the new import quota? Explain why.