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Unformatted text preview: Q to overshoot eﬃcient quantity of 1, it lands as far above eﬃcient Q as it was below before. The result is symmetric and equal DWL. (h) On the other hand, the subsidy is exactly enough to land the monopolist to land at the eﬃcient level of provision. Q = 1, p = 1. As with competition, CS = 1 / 2. The monopolists’ proﬁts are zero per unit, but it gets the subsidy of 1 per unit, making for proﬁts of 1. However, the subsidy costs 1 to provide, so W = 1 / 2+1-1 = 1 / 2. Because the subsidy encourages the under-producing cartel to produce the eﬃcient amount, the DWL disappears. (i) See previous two answers. Subsidy would lower welfare in competitive case. Competitive industry already produces eﬃcient amount. Subsidy would lead to ineﬃcient over-production. (j) See above answers 1...
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This note was uploaded on 12/26/2011 for the course ECON 100B taught by Professor Kilenthong during the Fall '08 term at UCSB.
- Fall '08