A monopolist has total costs T C(q) = 32 + 2.5q and faces a linear market demand q = p . The firm's marketing department knows that if they were to charge a price of p = 5 then the public would demand a quantity qD = 30 with an elasticity of demand of = 3.33. In addition, the production of this good relies on a heavily pollutant method, leading to a negative externality of $5 per unit produced.

(a) (3 points) Derive the functional form of the demand

Solve for monopolist's output, price, profits, consumer surplus and total surplus (don't forget to consider the producer surplus) when:

(b) (9 points) Price is unregulated (c) (9 points) Price is set such that the monopolist produces the competitive output.

(d) (9 points) From the point of view of CBA, does it make sense for a politician to endorse a policy whose objective is to bring more competitiveness into this market? Why?