(D) total costs? (E) profit or loss? (F) Will the monopoly need a subsidy? (G) If so, how much? 3. If cost-of-service regulation (fair-return price or average cost pricing) is imposed on this monop- olist, what will be the level of (A) output?, (B) price? (C) total revenue? (D) total costs? (E) profit or loss? 4. What are the advantages and disadvantages of marginal cost pricing? 5. What are the advantages and disadvantages of cost-of-service regulation? Regulating Monopoly Suppose you are an analyst for a board that regulates local monopolies. Your supervisor has given you the three questions below. Using the information in Figure 37.1, answer your supervisor's questions. Figure 37.1 Regulating a Monopoly $5.00 w 4.00 MG 3.00 ATC 2.00 1.00 MR 1,000 2,000 3,000 4,000 5,000 QUANTITY 1. If this monopolist is not regulated, what will be the level of (A) output? (B) price?. (C) total revenue? (D) total costs? (E) profit or loss? 2. If this monopolist is regulated by marginal cost pricing (i.e., the socially optimal price), what will be the level of (A) output? (B) price? (C) total revenue? COSTS/REVENUE

(D) total costs? (E) profit or loss? (F) Will the monopoly need a subsidy? (G) If so, how much? 3. If cost-of-service regulation (fair-return price or average cost pricing) is imposed on this monop- olist, what will be the level of (A) output?, (B) price? (C) total revenue? (D) total costs? (E) profit or loss? 4. What are the advantages and disadvantages of marginal cost pricing? 5. What are the advantages and disadvantages of cost-of-service regulation? Regulating Monopoly Suppose you are an analyst for a board that regulates local monopolies. Your supervisor has given you the three questions below. Using the information in Figure 37.1, answer your supervisor's questions. Figure 37.1 Regulating a Monopoly $5.00 w 4.00 MG 3.00 ATC 2.00 1.00 MR 1,000 2,000 3,000 4,000 5,000 QUANTITY 1. If this monopolist is not regulated, what will be the level of (A) output? (B) price?. (C) total revenue? (D) total costs? (E) profit or loss? 2. If this monopolist is regulated by marginal cost pricing (i.e., the socially optimal price), what will be the level of (A) output? (B) price? (C) total revenue? COSTS/REVENUE

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter9: Monopoly

Section: Chapter Questions

Problem 33P: Draw a monopolists demand curve, marginal revenue, and marginal cost curves. Identify the...

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Similar questions

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.)
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?
If the transit system were allowed to operate as an unregulated monopoly, what output would it supply and what price would it charge?
In what sense is a natural monopoly natural?
If public utilities are a natural monopoly, what would be the danger in deregulating them?
How does the demand curve perceived by a monopolist compare with the market demand curve?
How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?