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| Suppose that a monopolistic seller of flux capacitors faces the inverse demand curve P = 40 – 0.5Q, and that the monopolist can produce flux capacitors at a constant marginal cost of $5. a. How many units will an unregulated monopolist sell? b. Suppose that the government imposes a price ceiling of $6. What does this price ceiling do to the monopolist’s marginal revenue curve? Specifically, what is the marginal revenue of the 10th unit? The 68th? How about the 69th? c. How many units will a profit-maximizing monopolist sell when the price ceiling is in place? At what price? d. Compare the deadweight loss of unregulated monopoly to the deadweight losses with the price ceiling. Does the price ceiling improve social welfare? |
