A monopolist produces a product which has high investment cost. The marginal cost of the product is very small ( negligible ) . The monopolist has a patent for the product.

a. Show in a chart the price of goods that would arise if the company is unregulated and explain why. What is the effective price for the product? View deadweight loss that arises if you set a monopoly price.

b. View in another chart and explain that the lowest price as the supervisory authority may apply , provided that it would still persuade the company to develop the product. View deadweight loss that arises from this price. How does this work compared to the deadweight loss caused by monopoly price ?

c. Suppose you have accurate information on the company's fixed costs. How can you use price regulation on businesses, coupled with a subsidy to the company , to get an effective amount of the goods provided at the lowest cost to the government?