a) If the only goal of a regulator of a natural monopoly firm that charges a uniform price is to ensure that the firm produces the socially optimal level of output, and the regulator has the authority to order the firm to do so, explain why this power could not be exercised when the viability of the firm is taken into account. b) Explain why a regulator, whose sole objective is to ensure that a monopoly firm produce the socially optimal output, would have no need to do anything if the firm were a perfectly discriminating monopoly. c) If the market demand curve is common knowledge for a natural monopoly firm and a regulator, but unlike the firm, the regulator has no information about the firm’s cost curves. Explain how a regulator could incentivize the firm to produce the socially optimal output, bearing in mind that the regulator does not even know which level of output is socially optimal?
a) If the only goal of a regulator of a natural
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b) Explain why a regulator, whose sole objective is to ensure that a monopoly firm produce the socially optimal output, would have no need to do anything if the firm were a perfectly discriminating monopoly.
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c) If the market demand curve is common knowledge for a natural monopoly firm and a regulator, but unlike the firm, the regulator has no information about the firm’s cost curves. Explain how a regulator could incentivize the firm to produce the socially optimal output, bearing in mind that the regulator does not even know which level of output is socially optimal?
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