Answered: Today, you might be buying from a…

Today, you might be buying from a regulated natural monopoly when you purchase natural gas or electricity Oa computer, a phone, or a camera O a car, a truck, or a bicycle

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 20RQ: If public utilities are a natural monopoly, what would be the danger in deregulating them?

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Today, you might be buying from a regulated natural monopoly when you purchase
natural gas or electricity
a computer, a phone, or a camera
a car, a truck, or a bicycle

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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.)
If a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?
Imagine that you ale managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10 less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?
Imagine a monopolist could charge a different price to every customer based on how much he or she were willing to pay. How would this affect monopoly profits?
If public utilities are a natural monopoly, what would be the danger in deregulating them?
What is deregulation? Name some industries that have been deregulated in the United States.
What is a legal monopoly?
What is a natural monopoly?
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?
In the middle of the twentieth century, major U.S. cities had multiple competing city bus companies. Today, there is usually only one and it runs as a subsidized, regulated monopoly. What do you suppose caused the change?
ALCOA does not have the monopoly power it once had. How do you suppose their barriers to entry were weakened?
Is a monopolist a price taker? Explain briefly.