Answered: a b -LRAC h ·LRMC MR Demand y Quantity…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

(Regulating Natural Monopolies) The following graph represents
a natural monopoly.
a. Why is this firm considered a natural monopoly?
b. If the firm is unregulated, what price and output would
maximize its profit? What would be its profit or loss?
c. If a regulatory commission establishes a price with the
goal of achieving allocative efficiency, what would be
the price and output? What would be the firm’s profit
or loss?
d. If a regulatory commission establishes a price with the
goal of allowing the firm a normal profit, what would be
the price and output? What would be the firm’s profit
or loss?
e. Which one of the prices in parts b, c, and d maximizes
consumer surplus? What problem, if any, occurs at this
price?

a
b
-LRAC
h
·LRMC
MR
Demand
y
Quantity
Dollars per unit

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