9. Regulating a natural monopolyConsider the local cable company, a natural monopoly. The following graph shows the monthly demand curve for cable services and the company'smarginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves.1009080706050403020ATC10MCMRD0010 12 1418 204 6 816QUANTITY (Thousands of subscriptions)Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints.PRICE (Dollars per subscription)2 Complete the first row of the following table.Short RunPriceQuantity(Subscriptions) (Dollars per subscription)ProfitLong-Run DecisionPricing MechanismProfit MaximizationMarginal-Cost PricingAverage-Cost PricingSuppose that the government forces the monopolist to set the price equal to marginal cost.Complete the second row of the previous table.Suppose that the government forces the monopolist to set the price equal to average total cost.Complete the third row of the previous table.Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase, and lower the price whenever a firm's costsdecrease. Over time, under the average-cost pricing policy, what will the local cable company most likely do?O Work to decrease its costsAllow its costs to increase

A monopoly firm will maximise profit at a point where marginal revenue is equal to marginal cost and…

9. Regulating a natural monopoly Consider the local cable company, a natural monopoly. The following graph shows the monthly demand curve for cable services and the compa marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves. 100 90 80 70 60 50 40 30 20 ATC 10 MC 0 PRICE (Dollars per subscription) ▬▬▬▬▬▬▬▬== IE MR 4 6 8 10 12 14 16 QUANTITY (Thousands of subscriptions) II === 0 2 D 18 20

9. Regulating a natural monopoly Consider the local cable company, a natural monopoly. The following graph shows the monthly demand curve for cable services and the compa marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves. 100 90 80 70 60 50 40 30 20 ATC 10 MC 0 PRICE (Dollars per subscription) ▬▬▬▬▬▬▬▬== IE MR 4 6 8 10 12 14 16 QUANTITY (Thousands of subscriptions) II === 0 2 D 18 20

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Monopoly

Section: Chapter Questions

Problem 1CQQ

See similar textbooks

Similar questions

If public utilities are a natural monopoly, what would be the danger in deregulating them?
In what sense is a natural monopoly natural?
What is a natural monopoly?
How does the demand curve perceived by a monopolist compare with the market demand curve?
From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly? Justify. Use the following information to answer the next three questions. In the years before wireless phones, when telephone technology requited having a wile matting to every home, it seemed plausible that telephone service had diminishing average costs and might require regulation like a natural monopoly. For most of the twentieth century, the national U.S. phone company was AT&T, and the company functioned as a regulated monopoly. Think about the deregulation of the U.S. telecommunications industry that has occurred over the last few decades. (This is not a research assignment, but a thought assignment based on what you have learned in this chapter.)
What is a legal monopoly?
What is the usual shape of a marginal revenue cuwe for a monopolist? Why?
Why are urban areas willing to subsidize urban transit systems? Does the argument for subsidies make sense to you?
Draw a monopolists demand curve, marginal revenue, and marginal cost curves. Identify the monopolists profit-maximizing output level. Now, think about a slightly higher level of output (sayQ0+1). According to the graph, is there any consumer willing to pay more than the marginal cost of that new level of output? If so, what does this mean?
Draw the demand curve, marginal revenue, and marginal cost curves from Figure 9.6, and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose demand for the monopolys product increases dramatically. Draw the new demand me. What happens to the marginal revenue as a result of the increase in demand? What happens to the marginal cost curve? Identify the new profit-maximizing quantity and price. Does the answer make sense to you? Figure 9.6 Illustrating Profits at the HealthPill Monolpoly
In the middle of the twentieth century, major U.S. cities had multiple competing city bus companies. Today, there is usually only one and it runs as a subsidized, regulated monopoly. What do you suppose caused the change?
Imagine a monopolist could charge a different price to every customer based on how much he or she were willing to pay. How would this affect monopoly profits?