1 First and Second-Best Regulation Consider a monopolist with the following cost function: C(y) = 8 + y if y > 0 0 if y = 0 The inverse demand function is given by P(y) = 10 - y. (a) What are the marginal and average cost functions? (b) What is the monopoly price, quantity and profit? (c) Find the first-best price regulation. Does it require a subsidy? If so, compute it. (d) Find the second-best price regulation. Would the monopolist object to this regulation? Why or why not? (e) Why might the first-best and second-best regulation be difficult to implement in practice?