8. Natural monopoly analysisThe following graph gives the demand (D) curve for water services in the fictional town of Streamship Springs. The graph also shows the marginalrevenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local water company, a natural monopolist.On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist.40363228242PRICE (Dollars per hundred cubic feet)20201162128ATC4MCMRD0012345678910QUANTITY (Hundreds of cubic feet)Monopoly Outcome(?)Which of the following statements are true about this natural monopoly? Check all that apply.The water company is experiencing diseconomies of scale.In order for a monopoly to exist in this case, the government must have intervened and created it.It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers.The water company must own a scarce resource.True or False: Without government regulation, natural monopolies never earn zero profit in the long run.TrueFalse

What is a Natural Monopoly?A natural monopoly is a type of market structure where a single firm can…

Answered: 8. Natural monopoly analysis The…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Monopoly

Section: Chapter Questions

Problem 9PA

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Similar questions

In what sense is a natural monopoly natural?
What is the usual shape of a total revenue curve for a monopolist? Why?
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?
What is a natural monopoly?
How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?
Can you think of any examples of successful predatory pricing in the real world?
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?
Suppose the market for Hula Hoops is monopolized by a single firm. a. Draw the initial equilibrium for such a market. b. Now suppose the demand for Hula Hoops shifts outward slightly. Show that, in general (contrary to the competitive case), it will not be possible to predict the effect of this shift in demand on the market price of Hula Hoops. c. Consider three possible ways in which the price elasticity of demand might change as the demand curve shifts: It might increase, it might decrease, or it might stay the same. Consider also that marginal costs for the monopolist might be increasing, decreasing, or constant in the range where MR=MC Consequently, there are nine different combinations of types of demand shifts and marginal cost slope configurations. Analyze each of these to determine for which it is possible to make a definite prediction about the effect of the shift in demand on the price of Hula Hoops.
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.)
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
What is the usual shape of a marginal revenue cuwe for a monopolist? Why?
Is a monopolist allocatively efficient? Why or why not?

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