An unregulated monopoly firm bottles a product called “Panacea”, a unique health product that has no substitutes. The monopoly firm has a marginal cost curve that follows the equation P = 50 + Q. The market demand for the product follows the equation P = 200 – Q. The firm currently sells 50 bottles per month at a price of $150. What is the socially efficient number of bottles of “Panacea” and at what price could the efficient number of bottles be sold? What is a method the government can use to correct the inefficiencies of a market? Explain how that method will improve the market’s outcome.

An unregulated monopoly firm bottles a product called “Panacea”, a unique health product that has no substitutes. The monopoly firm has a marginal cost curve that follows the equation P = 50 + Q. The market demand for the product follows the equation P = 200 – Q. The firm currently sells 50 bottles per month at a price of $150. What is the socially efficient number of bottles of “Panacea” and at what price could the efficient number of bottles be sold? What is a method the government can use to correct the inefficiencies of a market? Explain how that method will improve the market’s outcome.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.5P

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