16. Suppose that a monopolistic seller of flux capacitors faces the inverse dema

Question

16. 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. Suppose that the government imposes a price ceiling of $6. Which of the following statements is correct in regard to regulated versus unregulated monopoly. A. The unregulated monopolist charges higher prices, has greater producer surplus, less consumer surplus, and less deadweight loss than the monopolist with a price ceiling at $6. B. An unregulated monopolist charges higher prices, has greater producer surplus, less consumer surplus, and more deadweight loss than the monopolist with a price ceiling at $6. C. An unregulated monopolist charges higher prices, has greater producer surplus, more consumer surplus, and less deadweight loss than the monopolist with a price ceiling at $6. D. An unregulated monopolist charges higher prices, has greater producer surplus, more consumer surplus, and more deadweight loss than the monopolist with a price ceiling at $6. 16. 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. Suppose that the government imposes a price ceiling of $6. Which of the following statements is correct in regard to regulated versus unregulated monopoly. A. The unregulated monopolist charges higher prices, has greater producer surplus, less consumer surplus, and less deadweight loss than the monopolist with a price ceiling at $6. B. An unregulated monopolist charges higher prices, has greater producer surplus, less consumer surplus, and more deadweight loss than the monopolist with a price ceiling at $6. C. An unregulated monopolist charges higher prices, has greater producer surplus, more consumer surplus, and less deadweight loss than the monopolist with a price ceiling at $6. D. An unregulated monopolist charges higher prices, has greater producer surplus, more consumer surplus, and more deadweight loss than the monopolist with a price ceiling at $6.

Explanation / Answer

at natural equilibrium

for monopolist

MR = MC

P = 40-.5Q

R = PQ = (40-.5Q)*Q

MR = 40-Q

MC = 5

MR = MC

40-Q = 5

Q = 35 unit

Price = 40-.5*35 = $22.5

A. The unregulated monopolist charges higher prices, has greater producer surplus, less consumer surplus, and less deadweight loss than the monopolist with a price ceiling at $6.

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