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Question: A domestic shoe company distributes running shoes and tennis shoes for $95 per pair to it domestic shoe retailers. The marginal cost of producing a pair of running shoes is $60 and the marginal cost of producing a pair of tennis shoes is $45. Ignore any potential issues of bundling the two types of shoes together as part of the sale and any competitive effects that international sales might have on current domestic sales. A Chinese retailer offers to purchase running shoes for $55 per pair and tennis shoes for $55 per pair for distribution in China.
a. Should the shoe company sell running shoes to the Chinese retailer?
b. Why or why not?
c. Should the chose company sell tennis shoes to the Chinese retailer?
d. Why or why not?
e. Suppose the domestic shoe company has a maximum capacity of 50,000 pairs of running shoes and 50,000 pairs of tennis shoes in total of which 45,000 pairs of running shoes and 45,000 pairs of tennis shoes can be sold to domestic retailers. If the Chinese retailer offers to purchase 15,000 of running shoes and 15,000 pairs of tennis shoes, how should the supply of shoes be allocated?
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