A monopolist faces an inverse demand curve Q = 121 / P 2 , where P is measured in dollars and Q in thousands of units. The monopolist's average variable cost is AVC = Q .

( Assume that its fixed cost is zero. )

a) Study the monopoly equilibrium for this firm both algebraically and graphically. Calculate the firm's degree of monopoly power using the Lerner index.

b) Examine the welfare results and calculate the social cost of the monopoly.

c) Suppose a government regulatory agency sets a price ceiling of $ 4 per unit. How will the monopoly equilibrium change? What happens to the degree of monopoly power? What are the welfare implications of this price ceiling policy?