Barnacle has earned more than $160 million over the past decade. Its customersspanning the gamut from cruise lines to freightersuse the product because it reduces their fuel bills. The annual (inverse) demand function for Barnacle's product is given byP= 220 -0.000006Q,and Barnacle's cost function is given byC(Q) = 200Q.Thanks to subsidies stemming from an energy bill passed by Congress nearly two decades ago, Barnacle does not have any fixed costs: The federal government essentially pays for the plant and capital equipment required to make this energy-saving product.Absent this subsidy, Barnacle's fixed costs would be about $9 million annually. Knowing that the company's patent will soon expire, Marge, Barnacle's manager, is concerned that entrants will qualify for the subsidy, enter the market, and produce a perfect substitute at an identical cost. With interest rates at 5 percent, Marge is considering a limit-pricing strategy.

Absent this subsidy, Barnacle's fixed costs would be about $9 million annually. Knowing that the company's patent will soon expire, Marge, Barnacle's manager, is concerned that entrants will qualify for the subsidy, enter the market, and produce a perfect substitute at an identical cost. With interest rates at 5 percent, Marge is considering a limit-pricing strategy.

a.What would Barnacle's profits be if Marge convinces the government to eliminate the subsidy?

b.What would Barnacle's profits be if Marge pursues a limit-pricing strategy if the subsidy is in place?

c.What would be the profit of a new entrant if the subsidy is eliminated and Barnacle continues to produce the monopoly level of output?