Question: Consider a monopoly that faces the demand curve

P = 20 – Q so that MR = 20 – 2Q

and had zero total costs so that MC = AC = 0.

a. Determine and illustrate this monopoly’s equilibrium output, price, markup, and profit if the government imposes a price ceiling of 12 on the monopoly (i.e., P £ 12). (3 points)

b. Determine and illustrate this monopoly’s equilibrium output, price, markup, and profit if the government, alternatively, imposes a price ceiling of 6 on the monopoly (i.e. P £ 6). (2 points)