The annual demand for natural gas in Zuma is given by theformula
Q=60-2P
Where P is the price and Q is the quantity demanded. Marginalcost is constant at $20 per unit and there is no overhead.
a. If a monopolist controls natural gas production, what will bethe 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 theinterest of efficiency, assuming all other industries in Zuma areperfectly competitive?
c. Disregarding questions of the distribution, in whichsituation is Zuma better off-monopoly or government control?Calculate the approximate magnitude of the difference in welfarelevel 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? Wouldyou advise the government to take over the industry now? Explainyour answer.
