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# pmap2ans - 20 and quantity produced would be 25 This policy...

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Additional Problem 2 : Pure Monopoly The following diagram illustrates the cost curves and demand information for a pure monopoly. Answer the questions below this figure. a) The monopolist is in long run (short run, long run) equilibrium. At equilibrium the monopolist received a profit (profit, loss, break even) of \$ 20 . b) If the monopolist acted in a purely competitive way in the long-run the equilibrium price would be \$ 20 and quantity of output would be 25 . The pure competitor would receive a loss (profit, loss, break even) given the same cost and demand information. c) If government decides to regulate this firm (which again we will view as a monopolist) in the long-run in order to maximize the allocation of resources to society, the regulated price would be \$
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Unformatted text preview: 20 and quantity produced would be 25 . This policy would yield a loss (profit, loss, break even) to the monopolist of \$ 125 . d) Given the result in (c) above, the government might decide instead to use a fair-return pricing strategy. Under this scheme, the price would be set at \$ 27 and quantity produced would be 21 . This policy provides the monopolist with a break even (profit, loss, break even) outcome. e) Should the government choose to subsidize the monopolist in order to provide the public with maximum output of the firm, the subsidy would be \$5 per unit, or \$125 total . The price under this scenario will be \$ 20 and quantity produced will be 25 . 0 z D MR Price and costs (dollars) 10 21 25 Quantity MC ATC z z z 36 34 27 25 20...
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