Economics Homework Help

The demand for marijuana is Q = 500 – 3P. Producers of marijuana face the following cost function: C(Q) = 10 + 5Q.

a) The government could let the free market distribute marijuana. Calculate the producer surplus under perfect competition.

b) The government could also introduce a state monopoly to sell marijuana. Calculate the producer surplus under a monopoly.

c) The government could also open a marijuana club. Members of the club would pay a membership fee and pay per usage. Assuming the government knows exactly the demand function, what is the largest producer surplus it can generate?