1. Suppose that costs are given by C(y) = 8 + y for y > 0 and 0(0) 2 0. The demand curve is P(y) = 10 y. Derive the following. (a) the marginal and average cost functions. (b) the monopoly price, quantity and prot. (c) the rst-best price regulation (this sets price equal to marginal cost). If a subsidy is required, compute it. ((1) the second-best price regulation (this sets price equal to average cost, ensuring the rm does not require a subsidy in order to operate). 2. Suppose that costs are given by C(y) = 18 + 0.51,!2 for y > 0 and 0(0) = 0 and the demand curve is P(y) = 9 y. (a) the marginal and average cost functions. (b) the monopoly price, quantity and prot. (c) the rstbest price regulation (this sets price equal to marginal cost). If a subsidy is required, compute it. (d) show that this product cannot be protably sustained in the market but that its production is nevertheless socially desirable. Explain