Completely eliminate deadweight loss in this market

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Reference no: EM131004517

Suppose that the firm Traveldrex gets a patent for a new type of travel mug that will never tip over. As a monopolist in the market for this new type of travel mug, Traveldrex faces market demand Q = 120 – 2p, where Q is in thousands of mugs and p is in dollars. Traveldrex’s cost function for mugs is 100 + Q2 . Suppose the government decides that travel mugs are too expensive and imposes a price ceiling of $44 per mug. If Traveldrex can charge only $44 per mug, how many mugs will it sell? What are its new economic profits? What is the new consumer surplus? What is the new deadweight loss? j. If the government wanted to set a price ceiling on mugs to completely eliminate deadweight loss in this market, what price ceiling would it set? Using a new graph, explain your answer.

Reference no: EM131004517

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