A monopoly faces an inverse demand curve of P = 100 - 2Q. The ...

[aabwk4]

A monopoly faces an inverse demand curve of P = 100 - 2Q. The marginal cost curve is MC = .5Q. What government price ceiling would represent optimal price regulation?
 
  What will be an ideal response?

Question 2

Suppose the long-run supply curve for a perfectly competitive industry is horizontal at a price of 12, and the minimum short-run average variable cost for each of the identical N firms in the industry is 8. If the demand curve for the industry decreases so that it intersects the short-run supply curve of the industry at 10,
 
  A) in the short run the price will decrease to 10, and the number of firms will still be N. In the long run the price will return to 12, and the number of firms will be less than N.
  B) in the short run the price will decrease to 10, and the number of firms will be less than N. In the long run the price will return to 12, and the number of firms will return to N.
  C) in the short run the price will remain at 12, and the number of firms will still be N. In the long run the price will fall to 8, and the number of firms will be less than N.
  D) In the short run the price will decrease to 10, and the number of firms will be less than N. In the long run the price will return to 12, and the number of firms will return to N.

[meltdown117]

Answer to Question 1

Setting P = 100 - 2Q = .5Q = MC, the optimal price ceiling is 40.

Answer to Question 2

A