The inverse demand for a product is P(Q) = 100 − (1/2)Q. Production is associated with a marginal private cost, MCP (Q) = Q, and a constant marginal external cost, MCE = 25.
(a) Graph inverse demand, marginal revenue, marginal private cost, and marginal social cost on a single graph. Label the axes. (b) What is the unregulated equilibrium? (Define in terms of price and quantity.) (c) What is the socially optimal price-quantity pair? (d) What is the deadweight loss under an unregulated monopoly in this case? (e) What should the regulator do?