Question: The widget industry in Anytown is a monopoly, controlled by Widget Corp. Its demand curve for the local market is given by
P = 800 - 20 W
Where W represents the number of widgets sold per period.
The total cost function (including opportunity or implicit costs) for Widget Corp. is
TC = 300 + 500 W + 10W^2
Q1. Assuming the industry is unregulated, what are the equilibrium price and output and economic profits earned by Widget Corp.?
Q2. If the industry is regulated and the regulatory authority forces Widget Corp. to earn only a normal return on investment (which is included in its cost function), what is the resulting equilibrium price and quantity?
Q3. What happens to consumer surplus? What happens to the economic profits earned by Widget Corp.?