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Calculate the price-effort-quantity

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Reference no: EM132586826

A monopolist operates in a market of demand q = 10-p with a total cost of C(Q, e) = (3/2)e 2 +(5-e)Q, where e represents effort.

a. Calculate the price, effort, quantity, and welfare that results from an unregulated monopoly.

b. A regulator establishes that price must equal marginal cost. The monopolist is free to select the level of effort. Calculate price, effort, quantity, and welfare in this situation.

c. A regulator decides to force price equal to marginal cost and mandates that monopolist must choose the level of effort that minimizes costs for a given level of quantity. Calculate price, effort, quantity, and welfare in this new situation.

d. Based on your answer to the previous parts, should a regulator focus on allocative efficiency and ignore productive efficiency?

Reference no: EM132586826

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