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. Short Run Price Pricing Mechanism Profit Maximization Marginal-Cost Pricing Average-Cost Pricing Quantity (Subscriptions) (Dollars per subscription) Profit Long-Run Decision ►►► 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 False: Over time, the electric company has a very strong incentive to lower costs when subject to average-cost pricing regulations. True False 9. Regulating a natural monopoly 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. 100 90 80 70 60 PRICE (Dollars per subscription) 50 40 30 50 20 20 10 10 ATC MC MR 0 0 2 4 6 8 10 12 14 16 18 20 20 QUANTITY (Thousands of subscriptions) D ?
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. Short Run Price Pricing Mechanism Profit Maximization Marginal-Cost Pricing Average-Cost Pricing Quantity (Subscriptions) (Dollars per subscription) Profit Long-Run Decision ►►► 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 False: Over time, the electric company has a very strong incentive to lower costs when subject to average-cost pricing regulations. True False 9. Regulating a natural monopoly 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. 100 90 80 70 60 PRICE (Dollars per subscription) 50 40 30 50 20 20 10 10 ATC MC MR 0 0 2 4 6 8 10 12 14 16 18 20 20 QUANTITY (Thousands of subscriptions) D ?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Do not use chatgpt.
Answer in step by step with explanation.
Transcribed Image Text: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.
Short Run
Price
Pricing Mechanism
Profit Maximization
Marginal-Cost Pricing
Average-Cost Pricing
Quantity
(Subscriptions)
(Dollars per subscription)
Profit
Long-Run Decision
►►►
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 False: Over time, the electric company has a very strong incentive to lower costs when subject to average-cost pricing regulations.
True
False
Transcribed Image Text:9. Regulating a natural monopoly
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.
100
90
80
70
60
PRICE (Dollars per subscription)
50
40
30
50
20
20
10
10
ATC
MC
MR
0
0 2
4
6
8 10
12
14
16
18
20
20
QUANTITY (Thousands of subscriptions)
D
?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education