Free-Response Questions 1. The Desert Oasis Water Company is a natural monopoly in the town of Dryville. The firm experiences a constant marginal cost and is currently operating at a loss. a. Using a correctly labeled graph, illustrate the market for water in Dryville. i. Label the profit-maximizing quantity Q1. ii. Label the profit-maximizing price P. iii. Shade the area that represents the firm's loss. iv. Label the allocationy efficient quantity Qs. b. In an effort to achieve the allocationy efficient quantity, the government of Dryville is considering a lump-sum subsidy (a fixed contribution of money) for the Desert Oasis Water Company. Assuming that the firm would continue to operate with or without the subsidy, what effect will this subsidy have on the firm's output level? Explain. (7 points)2. Gary's Greenhouse is a single-price monopolist that sells tulips and earns a normal profit. a. Draw a correctly labeled graph for Gary's Greenhouse showing the following: i. the profit-maximizing price and quantity, labeled as Pm and Om ii. the area of total cost, shaded completely b. Label a point A to indicate the left end of the inelastic portion of the demand curve. (7 points)