Suppose STL Electro, a monopolist that produces electricity, faces constant marginal costs of $5 and its profit-maximizing price is $8.a.What is the effect on social welfare if the government regulates this monopoly by setting a price ceiling of $6 on electricity? b.What is the effect on social welfare if the government used rate-of -return regulation instead of a price ceiling, so STL Electro could only earn zero economic profits?

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a If the government regulates the monopoly by setting a price ceiling of 6 on electricity it would l... View the full answer