imagine a university called Bavis that is the monopoly in the market for economics degrees,with cost-function C(Q) = 25Q2+ 360. Imagine the inverse demand function for economics degrees is p(Q) = 400−25Q. The government has decided it would ensure that there is no deadweight loss in this market for economics degrees by setting a price cap on Bavis.
A. What would be the equilibrium price and equilibrium quantity if the government did not impose a price cap and Bavis was able to operate as an unregulated monopoly?
B. At what optimal price should the government cap economics degree sales?
C. What are the new post-price cap equilibrium price and equilibrium quantity?
D. What is Bavis’s new profit at the equilibrium?
E. Prove that this new profit level is a global maximum.F. Show the new equilibrium price and equilibrium quantity graphically. Include
the original and regulated inverse demand curves, firm’s marginal revenue curve,and firm’s marginal cost curve.
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