John is considering starting a t-shirt company.

| November 24, 2016

2. John is considering starting a t-shirt company. To do so would require the purchase of a machine to imprint the t-shirts. Cost = $50,000 with no resale value. A corporate “friend” has promised John a one-year contract for 20,000 shorts, if his price is “right”. The marginal cost of producing a t-shirt is $1.50.
a. What is the lowest price John can offer for this contract?
b. At the end of the one-year contract, what will his “friend” offer John as the price for an extension of the deal?

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