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Demonstrate graphically how regulating the price of a monopolist can both increase quantity and decrease price.
a) Why did the regulation have the effect it did?
b) How relevant to the real world do you believe this result is in the "contestable markets" view of the competitive process?
c) How relevant to the real world do you believe this result is in the "cartel" view of the competitive process?

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Evaluates briefly the cartel view.

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Please find the attached graph (jpeg).

A. Regulation restored the efficient level of price and quantity by simulating a perfectly competitive free market; specifically by enforcing the equilibrium of supply = demand. Otherwise, the monopolist would have had incentive to set quantity at MR = MC and price at the corresponding level of demand (higher price and lower quantity).

B. It is certainly an ...

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