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Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for internet 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 40 Comple 20 10 0 0 2 || 4 Pricing Mechanism Profit Maximization MR 8 10 12 14 QUANTITY (Thousands of subscriptions) Complete the first row of the following table. Marginal-Cost Pricing Average-Cost Pricing 16 Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. ATC -MC 18 20 the previoue table D Short Run Price Quantity (Subscriptions) (Dollars per subscription) Profit Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. Long-Run Decision

Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for internet 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 40 Comple 20 10 0 0 2 || 4 Pricing Mechanism Profit Maximization MR 8 10 12 14 QUANTITY (Thousands of subscriptions) Complete the first row of the following table. Marginal-Cost Pricing Average-Cost Pricing 16 Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. ATC -MC 18 20 the previoue table D Short Run Price Quantity (Subscriptions) (Dollars per subscription) Profit Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. Long-Run Decision

Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter15: Economic Regulation And Antitrust Policy
Section: Chapter Questions
Problem 10PAE
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Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for internet 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 40 20 10 0 0 2 || Pricing Mechanism Profit Maximization 4 Complete the first row of the following table. MR 8 10 12 14 QUANTITY (Thousands of subscriptions) Marginal-Cost Pricing Average-Cost Pricing O True Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. O False 16 ATC -MC Complete the third row of the previous table. 18 20 D Short Run Price Quantity (Subscriptions) (Dollars per subscription) Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. Profit Complete the second row of the previous table. Suppose now that the government decides to require the monopolist to set its price equal to average total cost. Long-Run Decision True or False: Over time, the internet service provider has a very strong incentive to lower costs when subject to average-cost pricing regulations.
Transcribed Image Text:Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for internet 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 40 20 10 0 0 2 || Pricing Mechanism Profit Maximization 4 Complete the first row of the following table. MR 8 10 12 14 QUANTITY (Thousands of subscriptions) Marginal-Cost Pricing Average-Cost Pricing O True Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. O False 16 ATC -MC Complete the third row of the previous table. 18 20 D Short Run Price Quantity (Subscriptions) (Dollars per subscription) Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. Profit Complete the second row of the previous table. Suppose now that the government decides to require the monopolist to set its price equal to average total cost. Long-Run Decision True or False: Over time, the internet service provider has a very strong incentive to lower costs when subject to average-cost pricing regulations.
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