1.17. This question uses the algebraic method to solve prob-

lems from Appendix 3A and Appendix 6A. The market of widgets is characterized by a single seller. The mar-

ket demand and the firm's total cost are given by:

P= 150-Q Demand Curve TC = 475 + 500 Cost Function where P is the price per widgets and Q is the number of widgets. The firm has fixed costs of $475, and a constant variable cost of production equal to $50 per unit made. The marginal cost is always $50 for another widget.

a. Determine the profit maximizing price and quantity.

What are the firm's profit, the consumer surplus, and the deadweight loss?

b. Suppose the government decides to regulate the firm through price regulation. The government is consid-

ering either marginal cost pricing or average cost pricing. Calculate the following items under each proposal:

1. Price charged Il. Quantity produced iii. Firm's profit iv. Consumer surplus v. Deadweight loss

c. You are asked to make a recommendation on which proposal-marginal cost pricing or average cost pricing-the government should adopt. What kind of recommendation would you give? Explain.