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. (a) What would the "competitive" (i.e., price = marginal cost) outcome look like? Does this seem reasonable in this case? (b) What is the monopoly price and quantity? (c) Suppose a regulator wanted to improve welfare by operating the firm directly. Assuming that we value consumer surplus, producer surplus, and government revenue/cost equally, what output would the regulator choose? What is consumer surplus? What is the cost incurred by the government?

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