9. Regulating a natural monopolyConsider the only electric company in a small town, which you can assume operates as a natural monopoly. The following graph shows the demandcurve for electricity services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC)curve.PRICE (Dollars per subscription)10090807060504030201000III2MR46 810 12 14QUANTITY (Thousands of subscriptions)D16ATCMC18 20(2.)Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. Complete the first row of the following table.Pricing MechanismProfit MaximizationMarginal-Cost PricingAverage-Cost PricingQuantity(Subscriptions)Complete the second row of the previous table.Complete the third row of the previous table.Short RunPrice(Dollars per subscription)Suppose now that the government decides to require the monopolist to set its price equal to marginal cost.True川FalseProfitSuppose now that the government decides to require the monopolist to set its price equal to average total cost.Long-Run DecisionTrue or False: Under the average-cost pricing policy, the electric company has no incentive to cut costs.

A monopoly market is a market structure in which a single firm or entity has exclusive control over…

9. Regulating a natural monopoly Consider the only electric company in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for electricity services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. PRICE (Dollars per subscription) 100 90 80 70 60 50 40 30 20 10 0 ▬▬▬▬ 02 MR D 4 6 8 10 12 14 QUANTITY (Thousands of subscriptions) 16 ATC MC + 18 20 (?) Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits.

9. Regulating a natural monopoly Consider the only electric company in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for electricity services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. PRICE (Dollars per subscription) 100 90 80 70 60 50 40 30 20 10 0 ▬▬▬▬ 02 MR D 4 6 8 10 12 14 QUANTITY (Thousands of subscriptions) 16 ATC MC + 18 20 (?) Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Monopoly

Section: Chapter Questions

Problem 1CQQ

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