Assume initially there is no government regulation.

i) What are this monopoly's optimal output and corresponding price in the long run?You may use the first two rules of profit maximisation to explain your answer.

ii) Does the unregulated monopolist (i.e. without government regulation) in the diagram above attain allocative efficiency. Explain.

Consider now the government intervenes through marginal cost pricing.

i) What would be the new price, quantity and economic profit/loss under marginal cost pricing?

ii)Will the regulated monopolist achieve allocative efficiency? Why/why not? Will the firm stay or exit the market in the long run? Explain

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