1. In this problem you are going to figure out alternative ways of regulating a monopoly provider of residential water. You will first use regression analysis to estimate the demand curve for water. You will then find the monopoly's profit-maximizing output and price levels, the "zero-profit" output and price level, and finally the output and price level that would prevail if the industry were perfectly competitive. I also want you to calculate producer profit and consumer surplus. To be clear I want you to fill in the table below. want you to answer the questions that are written below the data. Show your work.

	Solution Criterion
	Profit Max	Zero-Profit	Perfectly Competitive
Output level
Price charged
Consumer Surplus
Profit
Consumer Surplus plus Profit

Here are the data you need.

Fixed costs per year: $4 million

Marginal cost of delivering water: $2.00 per ccf

Data to estimate demand curve

Consumption	Price
(million ccf)	($/ccf)
7.91	3.5
4.17	4.56
3.34	7.78
8.25	2.23
8.67	4.65
3.89	7.89
5.34	3.91
4.50	4.23
6.23	6.41
7.48	2.17
9.88	2.49
6.97	4.93
4.23	6.45
5.15	4.28
5.54	7.22
8.27	1.15
6.12	2.51
7.19	7.46

1. Estimate your linear demand curve for water. Use space below to show your regression results. Interpret your coefficients.

1. Use your demand curve and the cost data provided to calculate the monopolist's profit-maximizing output level, price, consumer surplus, and profit. Pay attention to your units!

1. Calculate the output and price level that generates zero profit for the producer. Calculate profit and consumer surplus.

1. Calculate the output level and price under the assumption of perfect competition. Calculate profit and consumer surplus.

1. What output level would you, as regulator of the monopoly, pick as the best policy? Justify your answer.