1. How much will the monopolist produce? 2. What is the socially efficient production level ? 3. Suppose the government gives the monopolist & units of money per unit sold. Can the monopolist be induced to produce at the socially efficient level by an appropriate choice of t? If yes, determine the optimal t, if not explain why not. 4. Suppose the government gives the monopolist 7 units of money independent of how many units are sold . Can the monopolist be induced to produce at the socially efficient level by an appropriate choice of T? If yes, determine the optimal T, if not explain why not. Exercise 5 The inverse demand function for a good is given by P = 10 - Q. The marginal cost per unit of the good to the producer is constant at 2. The toxic gas emanated during the production generates air pollution that amounts to 4 per unit . 1. What is the socially optimal quantity ? 2. Suppose the industry is perfectly competitive and firms ignore pollution. What is the market equilibrium? That is, what is P and @? Is this outcome socially optimal ? 3. Now suppose the firms that acted in a perfectly competitive fashion in 2. merge into one firm . What is the monopoly P and Q? Is this outcome socially optimal ? Explain Exercise 6 One consumer has an (inverse ) demand function for potatoes given by P = 10 - Q, where 2 denotes the amount of potatoes in pounds. The marginal cost per pound of potatoes sold is decreasing, and is given by MC (Q) = 5 - Q/4. 1. What is the socially optimal amount of potatoes to sell? 2. Suppose a monopolist sells potatoes by the pound (or fractions of pounds), by setting a price per pound . What are the profit -maximizing price and quantity