Y6

2. Suppose a price-searching firm has a production technology yielding constant marginal costs and large fixed costs. a. Provide a graph showing the profit-maximizing quantity of output per unit time and the equilibrium price the firm charges. b. How does the equilibrium from part a. compare to the efficient price-quantity equilibrium? Show this on your graph and provide a short verbal answer. c. What will happen to the firm's profits if public regulation forces the firm to produce at the efficient equilibrium, as opposed to the profit-maximizing equilibrium