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A monopolist faces an inverse market demand P(Q) = 200 − (1/2)Q and a marginal cost of MC(Q) = 20 + Q.
(a) What is the unregulated monopolist’s optimal quantity?
(b) What would an appropriate regulatory instrument to bring this market back to efficiency?
(c) What would be the regulated quantity and price if this instrument were successfully implemented?
(d) What is the increase in welfare resulting from regulation?
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