The Durr government has made a law that makes Artslet Co. the monopoly supplier of telephone services in Ozland. Alan Accountant and Edwina Economist are discussing how government intervention may...

The Durr government has made a law that makes Artslet Co. the monopoly supplier of telephone services in Ozland. Alan Accountant and Edwina Economist are discussing how government intervention may therefore be required to correct for market failure in the market for telephone services in Ozland. Alan says: ‘Because Artslet Co. is a monopolist, it will supply less than the efficient quantity of services. Hence, the government could improve the wellbeing of society in Ozland by paying Artslet Co. a subsidy that will induce it to increase its quantity supplied’. Edwina replies: ‘I agree that a subsidy will increase the quantity of services provided, which will therefore improve society’s wellbeing. But this policy means that most of the surplus from trade goes to Artslet Co. A better policy – which will mean that most of the surplus from trade will go to buyers – is to force Artslet Co. to set a price equal to the competitive equilibrium price’. Consider the statements made by Alan Accountant and Edwina Economist. Say whether you believe each statement to be correct or incorrect.