Make the assumption that an economy has no external effects and all actors are perfectly informed. In addition, one good is produced by a firm who is a non-discriminating monopolist (known as Frontier Firm). Any other output/input markets are perfectly competitive. Frontier Firm's quantity of output demanded is 500 - 2P. Their long run marginal cost of production is 200 + Q
A) Without any government action what so ever. How much would Frontier Firm produce, what would its price be, and what would its profit be?
B) Frontier Firm was offered a subsidy of $200 per unit by the government. Answer Part A again, assuming Frontier Firm chooses to take the subsidy.
C) Will the subsidy in Part B allow for an efficient allocation of resources? (hint: Does it violate any the three necessary and sufficient conditions?)
Any use of diagrams to help illustrate the answer would be appreciated.