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The graph depicts the market for cable where there is one natural monopoly; AC represents average (total) cost, D represents market demand, and MR represents marginal evenue. Assume that the marginal cost is equal to 0. Suppose that before the cable company lays any cable, the government decides to regulate the monopoly by setting the price. What is the lowest price that regulators can impose while ensuring that the cable company enters the market? $ 2 What will a monopolist charge in the absence of any regulation? Price $10 9 8 7 6 5 4 3 N 2. 1 01 AC -2 MR 3 4 D 5 6 7 8 9 IC Households (in millions)

The graph depicts the market for cable where there is one natural monopoly; AC represents average (total) cost, D represents market demand, and MR represents marginal evenue. Assume that the marginal cost is equal to 0. Suppose that before the cable company lays any cable, the government decides to regulate the monopoly by setting the price. What is the lowest price that regulators can impose while ensuring that the cable company enters the market? $ 2 What will a monopolist charge in the absence of any regulation? Price $10 9 8 7 6 5 4 3 N 2. 1 01 AC -2 MR 3 4 D 5 6 7 8 9 IC Households (in millions)

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter11: Monopoly And Antitrust Policy
Section: Chapter Questions
Problem 7SCQ: From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural...
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The graph depicts the market for cable where there is one natural monopoly; AC represents average (total) cost, D represents market demand, and MR represents marginal revenue. Assume that the marginal cost is equal to 0. Suppose that before the cable company lays any cable, the government decides to regulate the monopoly by setting the price. What is the lowest price that regulators can impose while ensuring that the cable company enters the market? 2 What will a monopolist charge in the absence of any regulation? 4 Price $10 9 8 7 6 5 4- 3- تیا 2 1 0 1 AC 2 MR نیا D 4 5 6 7 8 9 10 Households (in millions)
Transcribed Image Text:The graph depicts the market for cable where there is one natural monopoly; AC represents average (total) cost, D represents market demand, and MR represents marginal revenue. Assume that the marginal cost is equal to 0. Suppose that before the cable company lays any cable, the government decides to regulate the monopoly by setting the price. What is the lowest price that regulators can impose while ensuring that the cable company enters the market? 2 What will a monopolist charge in the absence of any regulation? 4 Price $10 9 8 7 6 5 4- 3- تیا 2 1 0 1 AC 2 MR نیا D 4 5 6 7 8 9 10 Households (in millions)
What is the efficient price in this market? Incorrect Why can't the regulator charge the efficient price? Because P<AC meaning the cable company would operate at a loss and exit the market. Because natural monopolies cause negative externalities meaning the socially efficient marginal cost is greater than 0. Because natural monopolies are naturally inefficient. Because P>AC meaning the cable company would earn too much profit and be uncontestable.
Transcribed Image Text:What is the efficient price in this market? Incorrect Why can't the regulator charge the efficient price? Because P<AC meaning the cable company would operate at a loss and exit the market. Because natural monopolies cause negative externalities meaning the socially efficient marginal cost is greater than 0. Because natural monopolies are naturally inefficient. Because P>AC meaning the cable company would earn too much profit and be uncontestable.
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