3. Natural monopoly analysis The following graph shows the demand (D) for gas services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local gas company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. (? 20 18 Monopoly Outcome 16 14 12 10 8 ATC MC MR D 1 6 7 8 9 10 QUANTITY (Hundreds of cubic feet) Which of the following statements are true about this natural monopoly? Check all that apply. O It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. O The gas company must own a scarce resource. The gas company is experiencing economies of scale. O In order for a monopoly to exist in this case, the government must have intervened and created it. True or False: Without government regulation, natural monopolies always earn zero profit in the long run. O True O False PRICE (Dollars per hundred cubic fe et)

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Chapter9: Monopoly
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3. Natural monopoly analysis
The following graph shows the demand (D) for gas services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR)
curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local gas company, a natural monopolist.
On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist.
(?
20
18
Monopoly Outcome
16
14
12
10
8
ATC
MC
MR
D
1
6
7
8
9
10
QUANTITY (Hundreds of cubic feet)
Which of the following statements are true about this natural monopoly? Check all that apply.
O It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers.
O The gas company must own a scarce resource.
The gas company is experiencing economies of scale.
O In order for a monopoly to exist in this case, the government must have intervened and created it.
True or False: Without government regulation, natural monopolies always earn zero profit in the long run.
O True
O False
PRICE (Dollars per hundred cubic fe et)
Transcribed Image Text:3. Natural monopoly analysis The following graph shows the demand (D) for gas services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local gas company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. (? 20 18 Monopoly Outcome 16 14 12 10 8 ATC MC MR D 1 6 7 8 9 10 QUANTITY (Hundreds of cubic feet) Which of the following statements are true about this natural monopoly? Check all that apply. O It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. O The gas company must own a scarce resource. The gas company is experiencing economies of scale. O In order for a monopoly to exist in this case, the government must have intervened and created it. True or False: Without government regulation, natural monopolies always earn zero profit in the long run. O True O False PRICE (Dollars per hundred cubic fe et)
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A firm is a natural monopoly when it has economies of scale, that is when its average cost falls with increase in production.

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