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OptiOn 1 Ampstand is a natural monopolist earning economic prots. (a) Draw a graph of Anmstand, labeling the prot-maximizing price Pm, the prot-maximizing quantity Qm,

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OptiOn 1 Ampstand is a natural monopolist earning economic prots. (a) Draw a graph of Anmstand, labeling the prot-maximizing price Pm, the prot-maximizing quantity Qm, and the allocatiygly efficient quantity Q30. Shade the area of deadwerght loss. (b) If Amstand is earning economic prots, why would other rms not enter the market? Explain. (c) The government decides to regulate Amstangts price and follows a fair-return policy. On your graph from part (a), label this price PER and the new output quantity QFR. (d) If Armstmdfs total revenue at Pm changes to $100 million, what must its total cost be at this productive quantity? (e) Determine the output quantity from part (d) if PFR is $10. The demand curve intersects the y~ axis at $15. What is the consumer surplus with the g0 vemment intervention? (f) How would the government action in part (c) affect the deadweight loss in Ampstandjs market? (g) What would the government have to do to get Ampstand to produce at the socially optimal quantity and stay in the market in the long run? Explain. (h) Kermit is a small rm that sells a complementary good to Ampstandjs product in a perfectly competitive market. Assuming matter}. was in long-run equilibrium, illustrate the short-run effect of the government intervention from part (e) on Ella {tsis slipply and demand in a separate graph. Ifattsit. earns any economic prot or loss, shade i t. (i) What happens to the demand for the inputs in the factor market required to produce Wattsis good as a result of the changes in part (11)

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