Aqueus is a classic monopolist earning positive economic profits.

(a) Draw a graph of Aqueus, labeling the profit-maximizing price PM, the profit-maximizing quantity QM, and the allocatively efficient quantity QSO. Shade the area of deadweight loss.

(b) If Aqueus is earning economic profits, why would other firms not enter the market? Explain.

(c) The government sets an effective price ceiling. On your graph from part (a), label this price PRand the new output quantity QR.

(d) After the change in part (c), Aqueus's total revenue is $40 million. If the output quantity is now 5 million units, what must be the value of PR?

(e) If ATC at QRis $5, what is the economic profit or loss with the government intervention?

(f) How would the government action in part (c) affect the deadweight loss in Aqueus's market?

(g) Why might the government prefer to use antitrust policy to regulate Aqueus in the long run? Explain.

(h) Gaiana is a small firm that builds machines essential to the production of Aqueus's product in a perfectly competitive factor market. Assuming that Gaiana was in long-run equilibrium, illustrate the short-run effect of the government intervention from part (c) on Gaiana's supply and demand in a separate graph. If Gaiana earns any economic profit or loss, shade it.

(i) Assume that Gaiana operates in a constant-cost industry.What would happen to Gaiana's firm supply and demand in the long run? Explain.