Make a mistake in calculating price ceiling for monopolist

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Reference no: EM131174244

Consider a situation where a monopolist faces the foloowing inverse demand curve, p = 240 - 2q and constant marginal costs of MC = 40. Suppose that a regulator imposed a price ceiling on the monopolist of p = MC = 40.

- Suppose the regulator was susceptible to a bribe. For $500, the regulator will "make a mistake" in calculating the price ceiling for the monopolist, causting the price ceiling to be p = MC + 20 = 60. Would this bribe be worth it for the monopolist? Why or why not?

- For every $500 the monopolist gives the regulator, the regulator will raise the price of the price ceiling by $20. How much of a bribe should the monopolist give to the regulator?

Reference no: EM131174244

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