2 Suppose a monopolist faces a demand curve D(p) = 10 - P. It has no variablecost, but it incurs a quasi-fixed cost F = 9 if it produces any output at all.(d) Suppose instead that the regulator allowed the firm to continue operating,but regulated its price. The regulator wants to choose price to maximizeconsumer surplus, subject to the firm not losing money. That is, theregulator chooses P to maximize consumer surplus such that Q = 10- Pand PQ ≥ 9. How many prices satisfy both constraints (with equality)?Which one is best for welfare?(e) Suppose instead that there is no price regulation and the monopolist couldengage in first-degree price discrimination. What would the consumersurplus and producer surplus be in this case?(f) Compare the outcomes for direct operation, price regulation, and first-degree price discrimination. Which maximize total welfare? Does thisanswer necessarily imply that society should choose that option? Arethere any other (unmodeled) factors that we might want to consider inthe real world?

Demand function : D(p) = 10 - P Quasi fixed Cost = 9 Profit function = P*Q - 9

Suppose a monopolist faces a demand curve D(p) = 10 - P. It has no variable cost, but it incurs a quasi-fixed cost F = 9 if it produces any output at all. (d) Suppose instead that the regulator allowed the firm to continue operating, but regulated its price. The regulator wants to choose price to maximize consumer surplus, subject to the firm not losing money. That is, the regulator chooses P to maximize consumer surplus such that Q = 10 - P and PQ ≥ 9. How many prices satisfy both constraints (with equality)? un

Suppose a monopolist faces a demand curve D(p) = 10 - P. It has no variable cost, but it incurs a quasi-fixed cost F = 9 if it produces any output at all. (d) Suppose instead that the regulator allowed the firm to continue operating, but regulated its price. The regulator wants to choose price to maximize consumer surplus, subject to the firm not losing money. That is, the regulator chooses P to maximize consumer surplus such that Q = 10 - P and PQ ≥ 9. How many prices satisfy both constraints (with equality)? un

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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