Canada relies on a supply-management system for the production of food such as chicken, eggs, and milk. Accordingly, the government sets production quotas and distribute permits to farmers. The objective is to help sustain food prices by restricting production and limiting foreign competition. You are put in charge of this process for chicken. You know the inverse demand for chicken. According to your estimates the marginal cost of chicken producers is estimate. However, the real marginal cost incurred by chicken producers is real up to the chicken farms' capacity max.

Rather than setting quotas you announce to chicken farmers that the federal government will regulate the price for chicken to a level corresponding to the intersection between the inverse demand and C estimate. Illustrate on Figure 1,, the loss that society incur, if any, when compared to the optimal solution.