8.1 A monopolist’s inverse demand function is p = 100 - 2Q, so its marginal revenue is MR = 100 - 4Q. Its cost function is C = 25 +

4Q + 2Q2 and its marginal cost is therefore MC = 4 + 4Q.

a. Create a spreadsheet with column headings Q, p, MR, MC, R, C, profit, and CS (consumer surplus). Enter the values 1 to 25 in one-unit increments in the quantity column and enter the appropriate formulas in all the other cells.

Determine the profit maximizing output and price for an unregulated monopoly. What is the monopoly’s profit and the consumer surplus at this output and price?

b. Now use your spreadsheet to determine the price, quantity, profit, and consumer surplus if the regulator imposes a price cap (ceiling)

of 70.

c. Which of the two pricing structures yields the highest total surplus? If the regulator wants to use price cap regulation and wants to maximize total surplus, what price cap should the regulator choose?