Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 24

Use the accompanying graph to answer the questions that follow.

a. Suppose this monopolist is unregulated.
(1) What price will the firm charge to maximize its profits?
(2) What is the level of consumer surplus at this price?
b. Suppose the firm's price is regulated at $80.
(1) What is the firm's marginal revenue if it produces 7 units?
(2) If the firm is able to cover its variable costs at the regulated price, how much output will the firm produce in the short run to maximize its profits?
(3) In the long run, how much output will this firm produce if the price remains regulated at $80?