A monopolist produces a good with a constant marginal cost of c= 10 and fixed cost of F = 1000. Demand for the product is given by D(p) = 90-p. The firm could be subjected to price regulation that enforces marginal cost prices and subsidises any losses of the company. Suppose the regulator's objective is to maximise the difference between total welfare and the cost of subsidies allocated to the company. Assume the social cost of subsidies S are 35 where 8 20. Which of the following statements is correct? The unregulated monopoly price is 40 and price regulation is optimal for any B≤ 4/5. The unregulated monopoly price is 50 and price regulation is optimal for any ≤ 2/5. The unregulated monopoly price is 50 and price regulation is optimal for any ≤ 4/5. The unregulated monopoly price is 40 and price regulation is optimal for any ≤ 2/5. None of the above.
A monopolist produces a good with a constant marginal cost of c= 10 and fixed cost of F = 1000. Demand for the product is given by D(p) = 90-p. The firm could be subjected to price regulation that enforces marginal cost prices and subsidises any losses of the company. Suppose the regulator's objective is to maximise the difference between total welfare and the cost of subsidies allocated to the company. Assume the social cost of subsidies S are 35 where 8 20. Which of the following statements is correct? The unregulated monopoly price is 40 and price regulation is optimal for any B≤ 4/5. The unregulated monopoly price is 50 and price regulation is optimal for any ≤ 2/5. The unregulated monopoly price is 50 and price regulation is optimal for any ≤ 4/5. The unregulated monopoly price is 40 and price regulation is optimal for any ≤ 2/5. None of the above.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.1P
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![QUESTION 7
A monopolist produces a good with a constant marginal cost of c= 10 and fixed cost of F = 1000.
Demand for the product is given by
D(p) = 90-p.
The firm could be subjected to price regulation that enforces marginal cost prices and subsidises any
losses of the company. Suppose the regulator's objective is to maximise the difference between total
welfare and the cost of subsidies allocated to the company. Assume the social cost of subsidies S
are 3.5 where 8 20.
Which of the following statements is correct?
The unregulated monopoly price is 40 and price
regulation is optimal for any ≤ 4/5.
The unregulated monopoly price is 50 and price
regulation is optimal for any ≤ 2/5.
The unregulated monopoly price is 50 and price
regulation is optimal for any ≤ 4/5.
The unregulated monopoly price is 40 and price
regulation is optimal for any ≤ 2/5.
O None of the above.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcbbd1993-314e-4f22-8160-e1188205ab83%2F6e18273f-f20a-433f-ad94-a056de8c91ed%2Fl6g095o_processed.png&w=3840&q=75)
Transcribed Image Text:QUESTION 7
A monopolist produces a good with a constant marginal cost of c= 10 and fixed cost of F = 1000.
Demand for the product is given by
D(p) = 90-p.
The firm could be subjected to price regulation that enforces marginal cost prices and subsidises any
losses of the company. Suppose the regulator's objective is to maximise the difference between total
welfare and the cost of subsidies allocated to the company. Assume the social cost of subsidies S
are 3.5 where 8 20.
Which of the following statements is correct?
The unregulated monopoly price is 40 and price
regulation is optimal for any ≤ 4/5.
The unregulated monopoly price is 50 and price
regulation is optimal for any ≤ 2/5.
The unregulated monopoly price is 50 and price
regulation is optimal for any ≤ 4/5.
The unregulated monopoly price is 40 and price
regulation is optimal for any ≤ 2/5.
O None of the above.
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