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Consider a situation where a monopolist faces the following inverse demand curve p = 240 - 2q and constant marginal costs of MC = 40.
a. Suppose that a regulator imposed a price ceiling on te monopolist of p = MC = 40. What are the equilibrium price, quantity, and profits for this monopolist?
b. Now suppose a regulator was susceptible to a bribe. for $500, the regulator will "make a mistake" in calculating the price ceiling for the monopolist, causing the price ceiling to be p = MC + 20 = 60. Would this bribe be worth it for the monopolist? Why or why not?
c. 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?
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