Question

Doc Brown has decided to manufacture and sell Mr. Fusion home energy reactors. In the present, he is the only seller (but in the future, manufacturers are ubiquitous). Doc’s company faces the following demand curve: ?? = 80 − 2?

He can produce Mr. Fusions at a constant marginal cost of 5 bitcoins.

a) (5) How many Mr. Fusions will Doc sell and at what price? Circle your answers.

b) (10) Suppose the government puts in a price ceiling at 6 bitcoins. What does the price ceiling do to his marginal revenue curve? What is MR of the 10th, 68th, and 69th units? Circle your answers.

c) (5) How many Mr. Fusions will Doc sell and at what price with the price ceiling in place? Circle your answers.

d) (10) Compare the deadweight loss of the unregulated company with the deadweight loss from the regulated (price ceiling) company. Does the price ceiling increase social welfare?

Answer 1