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.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.10P

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