Use the following information to answer the next TWOquestions: Suppose a natural monopoly faces a demand curve P=100-Q and has total costs of
Question

# Use the following information to answer the next TWO questions:   Suppose

a natural monopoly faces a demand curve P=100-Q and has total costs of TC=490+2Q.   If the firm is subject to marginal cost pricing regulation, what total amount of subsidy will the government need to pay the firm to allow it to earn exactly zero economic profit?  \$ _____________ Suppose the firm is subject to average cost pricing regulation, but the regulation ends up serving the self-interest of the monopolist who decides to increase expenditures on on-the-job luxuries.  How much should the firm spend on on-the-job luxuries in order to maximize its 'luxury' profits?  \$ _______________

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