43. To be a natural monopoly a firm must OO Ohave significant network externalities O control a key resource input be very large relative to the total market have economies of scale that are so large that it can supply the entire market at a lower cost than two or more firms
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- 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.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?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.)
- What is a natural monopoly?How does the quantity produced and price charged by a monopolist compare to that of a perfectly competitive film?How is the perceived demand curve for a monopolistically competitive film different from the perceived demand curve for a monopoly or a perfectly competitive film?
- 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?If a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?Draw the demand curve, marginal revenue, and marginal cost curves from Figure 9.6, and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose demand for the monopolys product increases dramatically. Draw the new demand me. What happens to the marginal revenue as a result of the increase in demand? What happens to the marginal cost curve? Identify the new profit-maximizing quantity and price. Does the answer make sense to you? Figure 9.6 Illustrating Profits at the HealthPill Monolpoly