An industry with demand Q= 10 p is served by a monopolist with cost function C(Q,e)=4.5e+ (2 e), where e is the effort done by the monopolist. Effort can have only two values e = 0 (no effort) and e= 2 Notice that if e = 0 the cost function becomes C(Q)=2Q , and if e = 2 the cost function becomes C(Q)=9 (Effort is a discrete variable, there is no point in taking any derivative) a. Compute the monopolist's profits with effort and without effort, checking that they are the same (do not forget to substract fixed costs). b. Represent a diagram of the monopolist equilibrium in both situations. Does the monopolist have incentives to do effort? c. Suppose that a regulator tells to the firm that regulation is going to check that price equals marginal cost. What are the likely monopolist's price and cost? d. An economist proposes to tell the firm that price cannot be higher than 2 and the firm can keep any profit that may make. What are the likely price and cost if this proposal is applied? e. (4) Show in which regulatory solution (c or d) welfare is highest Briefly explain the meaning of "incentive regulation".