The Medici family in Florence produces all the wool in Italy. The five Medici children each have a factory in which they can produce one pound of wool per day. Their costs of producing each pound of...

The Medici family in Florence produces all the wool in Italy. The five Medici children each have a factory in which they can produce one pound of wool per day. Their costs of producing each pound of wool are given on the left side of the accompanying table. Wool is demanded by the Visconti family in Milan. Each of the five Visconti children can demand one pound of wool per day. Their willingness to pay is given on the right side of the table.

a. The market in wool is perfectly competitive. What will the

equilibrium price be?

b. Does the equilibrium price lead to efficiency in this market?

c. The Visconti family argues that the price of wool should

be fixed at a maximum of $10 so that all their operations

can buy wool. Is this efficient? Why or why not?