EBK ECONOMICS TODAY
18th Edition
ISBN: 9780100663268
Author: Miller
Publisher: YUZU
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Chapter 24, Problem cFCT
To determine
Reason for charging higher
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- Consider the only electric company in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for electricity services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. Complete the first row of the following table. Pricing Mechanism Short Run Long - Run Decision Quantity Price Profit (Subscriptions) (Dollars per subscription) Profit Maximization Marginal - Cost Pricing Average - Cost Pricing Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. 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. Complete the third row of the previous table. True or…arrow_forwardSome years ago, two intercity bus companies, Greyhound Lines, Inc. and Trailways Transportation System, wanted to merge. One possible definition of the market in this case was “the market for intercity bus service.” Another possible definition was “the market for intercity transportation, including personal cars, car rentals, passenger trains, and commuter air flights.” Which definition do you think the bus companies preferred, and why?arrow_forwardQ. STIHL, Inc., manufactures gasoline-powered chain saws for professional, commercial, farm, and consumer markets. To “better serve” their customers, STIHL offers its chain saws in four different quality lines and associated price ranges: occasional use, midrange, professional, and arborist. Under what circumstances could offering multiple qualities of a product be price discrimination? What form of price discrimination might this represent—first-, second-, or third-degree price discrimination? Explain why this practice could increase profit at STIHL.arrow_forward
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