1. The value of additional franchises in a league is given by the equation Value= 90 - 6Q,
2. where Q is the number of new franchises added to the league. Given the amount of revenue sharing in the league, the marginal cost of admitting new franchises in the league increases with the admission of franchises in smaller markets. That relationship is given by the equation MC = 10+4Q.
3. Showing all your work, calculate the number of franchises that would be admitted and
4. the franchise fee that would be charged if the league operated in a competitive environment and could not try to restrict franchises in order to increase the size of the franchise fee. Round the number of franchises to the nearest whole number if necessary. (25 points)
5. Now suppose that the league is a monopoly league and that it will reduce the number of franchise in order to increase the franchise fee. In this case the league will consider the marginal revenue from expansion. It is given by MR=90 - 12Q. Find the number of new franchises and the franchise fee for the monopoly league. Round the number of franchises to the nearest whole number if necessary. (35 points)