188 For a natural monopoly in which economies of scale are taking place at all output levels, which of the following is true? (A) It would need a subsidy, if regulated to follow marginal cost pricing. B It should be taxed, if regulated to follow average cost pricing C It would maximize total revenue rather than profits. It would produce the allocatively efficient output level, to maximize profit. D B) Its marginal cost exceeds its average total cost at all output levels.

In what sense is a natural monopoly natural?

If public utilities are a natural monopoly, what would be the danger in splitting them into a number of separate competing firms?

Suppose demand for a monopolys product falls 50 that its profit-maximizing price is below average variable cost. How much output should the film supply? Hint: Draw the graph.

What is the usual shape of a total revenue curve for a monopolist? Why?

What is the usual shape of a marginal revenue cuwe for a monopolist? Why?

If a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?

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 the transit system were regulated to operate with no subsidy (i.e., at zero economic profit), what approximate output would it supply and what approximate price would it charge?

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?