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3a) MONOPOLY REGULATION. Suppose that you had a monopoly on water which has a MC=$1 per litre and an initial fixed cost of $50 to set up. Explain using the graph below, how you would choose to set price and output, and what the approximate price and quantity would be. $12 $10 $8 $6 $4 $2 demand $0 0 50 100 150 200 250 300 350 litres 70 b) Illustrate the Consumer Surplus, Producer Surplus, AND Deadweight loss of the monopoly market and explain whether the market is efficient. c) Explain and illustrate the price, quantity and marginal value if the government chooses to regulate the monopoly by setting a socially optimal price. Explain whether this is efficient.

3a) MONOPOLY REGULATION. Suppose that you had a monopoly on water which has a MC=$1 per litre and an initial fixed cost of $50 to set up. Explain using the graph below, how you would choose to set price and output, and what the approximate price and quantity would be. $12 $10 $8 $6 $4 $2 demand $0 0 50 100 150 200 250 300 350 litres 70 b) Illustrate the Consumer Surplus, Producer Surplus, AND Deadweight loss of the monopoly market and explain whether the market is efficient. c) Explain and illustrate the price, quantity and marginal value if the government chooses to regulate the monopoly by setting a socially optimal price. Explain whether this is efficient.

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: Monopoly
Section: Chapter Questions
Problem 1QR
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3a) MONOPOLY REGULATION. Suppose that you had a monopoly on water which has a MC=$1 per litre and an initial fixed cost of $50 to set up. Explain using the graph below, how you would choose to set price and output, and what the approximate price and quantity would be. $12 $10 $8 $6 $4 $2 demand $0 0 50 100 150 200 250 300 350 litres 70 b) Illustrate the Consumer Surplus, Producer Surplus, AND Deadweight loss of the monopoly market and explain whether the market is efficient. c) Explain and illustrate the price, quantity and marginal value if the government chooses to regulate the monopoly by setting a socially optimal price. Explain whether this is efficient.
Transcribed Image Text:3a) MONOPOLY REGULATION. Suppose that you had a monopoly on water which has a MC=$1 per litre and an initial fixed cost of $50 to set up. Explain using the graph below, how you would choose to set price and output, and what the approximate price and quantity would be. $12 $10 $8 $6 $4 $2 demand $0 0 50 100 150 200 250 300 350 litres 70 b) Illustrate the Consumer Surplus, Producer Surplus, AND Deadweight loss of the monopoly market and explain whether the market is efficient. c) Explain and illustrate the price, quantity and marginal value if the government chooses to regulate the monopoly by setting a socially optimal price. Explain whether this is efficient.
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