Short Run Quantity Price Pricing Mechanism (Subscriptions) (Dollars per subscription) Profit Long-Run Decision Profit Maximization 13,000 65 Positive Stay in business Marginal-Cost Pricing Average-Cost Pricing 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. 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 costs decrease. Over time, under the average-cost pricing policy, what will the local cable company most likely do? O Allow its costs to increase O work to decrease its costs

Short Run Quantity Price Pricing Mechanism (Subscriptions) (Dollars per subscription) Profit Long-Run Decision Profit Maximization 13,000 65 Positive Stay in business Marginal-Cost Pricing Average-Cost Pricing 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. 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 costs decrease. Over time, under the average-cost pricing policy, what will the local cable company most likely do? O Allow its costs to increase O work to decrease its costs

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 4.2IP

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Regulating a natural monopoly

Consider the local cable company, a natural monopoly. The following graph shows the monthly demand curve for cable services, the company's marginal-revenue (MR), marginal cost (MC), and average-total-cost (ATC) curves.

PLEASE CHECK THE IMAGES

100
90
80
70
60
50
40
ATC
MC
30
10
MR
0.
+
0.
2.
4
6.
8.
10
12
14
16
18
20
QUANTITY (Thousands of subscriptions)
PRICE (Dollars per subscription)
20

Short Run
Quantity
Price
Pricing Mechanism
(Subscriptions)
(Dollars per subscription)
Profit
Long-Run Decision
Profit Maximization
13,000
Positive
65
Stay in business
Marginal-Cost Pricing
Average-Cost Pricing
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.
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 costs
decrease. Over time, under the average-cost pricing policy, what will the local cable company most likely do?
Allow its costs to increase
Work to decrease its costs

Definition Definition Total cost of producing a certain quantity of a good, divided by the quantity produced. It is the sum of all costs (fixed and variable) required to produce one unit of output.

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