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    Equilibrium price and quantity and governmnet subsidy

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    For Firm Y:

    Use the demand function: P = 30 - 2Q
    And the marginal cost function: MC = 20 to determine P and Q for profit maximization.

    Then, suppose a government subsidy of $6 per unit is imposed.

    What does the firm do with respect to price and quantity?

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    Solution Preview

    For profit maximization, we have MR=MC
    Equating MR=MC we ...

    Solution Summary

    Shows how to calculate the equilibrium price and quantity and how it can be affected by governmnet subsidy.