The annual demand for natural gas in Zuma is given by the formula

Q = 60-2P

where P is the price and Q the quantity demanded. Marginal cost is constant at $20 per unit and

there is no overhead.

a. If natural gas production is controlled by a monopolist, what will be the monopolist's annual

profits?

b. Suppose the government of Zuma nationalized the gas company. What would it produce and

what price would it charge in the interests of efficiency, assuming all other industries in Zuma

are perfectly competitive?

c. Disregarding questions of distribution, in which situation is Zuma better off- monopoly or

Government control? Calculate the approximate magnitude of the difference in welfare level

between the two situations.

d. Suppose that in fact there are additional overhead costs of $75 per year. What would the

monopolist do in this situation? Would you advise the Government to take over the industry

now? Explain your answer.