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Complete the first row of the following table. Short Run Pricing Mechanism Profit Maximization Marginal-Cost Pricing Average-Cost Pricing Quantity (Subscriptions) Price (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. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase, and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, what will the local electric company most likely do? Work to decrease its costs Allow its costs to increase 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 60 50 60 PRICE (Dollars per subscription) 40 40 30 30 20 20 10 16, 20 ATC MC ? MR D 0 + + 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) 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 Pricing Mechanism Profit Maximization Marginal-Cost Pricing Average-Cost Pricing Quantity (Subscriptions) Price (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. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase, and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, what will the local electric company most likely do? Work to decrease its costs Allow its costs to increase 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 60 50 60 PRICE (Dollars per subscription) 40 40 30 30 20 20 10 16, 20 ATC MC ? MR D 0 + + 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits.

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter9: Monopoly
Section: Chapter Questions
Problem 10RQ: What is a legal monopoly?
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Complete the first row of the following table. Short Run Pricing Mechanism Profit Maximization Marginal-Cost Pricing Average-Cost Pricing Quantity (Subscriptions) Price (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. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase, and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, what will the local electric company most likely do? Work to decrease its costs Allow its costs to increase
Transcribed Image Text:Complete the first row of the following table. Short Run Pricing Mechanism Profit Maximization Marginal-Cost Pricing Average-Cost Pricing Quantity (Subscriptions) Price (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. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase, and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, what will the local electric company most likely do? Work to decrease its costs Allow its costs to increase
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 60 50 60 PRICE (Dollars per subscription) 40 40 30 30 20 20 10 16, 20 ATC MC ? MR D 0 + + 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits.
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 60 50 60 PRICE (Dollars per subscription) 40 40 30 30 20 20 10 16, 20 ATC MC ? MR D 0 + + 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits.
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