Sub : Economics ( Regulating a natural monopoly)Pls answer Fastt. i ll upvote. Thank You 9. Regulating a natural monopolyConsider the local telephone company, a natural monopoly. The following graph shows the monthly demand curve for phone services and thecompany's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves.PRICE (Dollars per subscription)1009080201002MR10 12 14QUANTITY (Thousands of subscriptions)16ATCMC-18 20DSuppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints. Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints.Complete the first row of the following table.Pricing MechanismProfit MaximizationMarginal-Cost PricingAverage-Cost PricingShort RunQuantityPrice(Subscriptions) (Dollars per subscription)Suppose 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.ProfitAllow its costs to increaseUnder 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 telephone company most likely do?Work to decrease its costsLong-Run Decision

In order to maximise their returns, firms must ensure that the best levels of output and prices are…

9. Regulating a natural monopoly Consider the local telephone company, a natural monopoly. The following graph shows the monthly demand curve for phone services and the company's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves. 100 PRICE (Dollars per subscription) • 8 8 8 8 8 8 8 8 80 20 10 0 2 MR 10 12 QUANTITY (Thousands of subscriptions) 14 16 ATC MC- ? Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints.

9. Regulating a natural monopoly Consider the local telephone company, a natural monopoly. The following graph shows the monthly demand curve for phone services and the company's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves. 100 PRICE (Dollars per subscription) • 8 8 8 8 8 8 8 8 80 20 10 0 2 MR 10 12 QUANTITY (Thousands of subscriptions) 14 16 ATC MC- ? Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints.

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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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.)
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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?
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