Given: SEPTA is an example of a regulated natural monopoly. There are large fixed costs to run the system of trains and buses, but the marginal cost of having an additional customer use the system is low and constant. Assume FC= $1,000 and MC = $1. The market demand for SEPTA transit is given by P= 100.01QD where P is in dollars.

Suppose the government can introduce a per-unit tax or a per-unit subsidy. Explain

if the government can restore efficiency with either a per-unit tax or a per-unit

subsidy. If so, what is the optimal size of the tax or subsidy?