Assume that the marginal cost curve is given by mc(q) = 10+ 2q. The demand is equal to qd = 130 – p and the marginal revenue mr(q) 130 – 2q. The long-run average total cost || 100 + q (assume q is measured in millions). curve is 10 + (a) Is this monopoly a natural monopoly? If yes, explain why. (b) What is the optimal price and quantity for the monopolist? Is this resource allocation efficient? (c) Imagine you are an economist working for the FTC (Federal Trade Commission). Your goal is to maximize the efficiency in this market. Find the price that is consistent with average cost pricing. Will this improve efficiency in the market? Will the competition level increase?

Assume that the marginal cost curve is given by mc(q) = 10+ 2q. The demand is equal to qd = 130 – p and the marginal revenue mr(q) 130 – 2q. The long-run average total cost || 100 + q (assume q is measured in millions). curve is 10 + (a) Is this monopoly a natural monopoly? If yes, explain why. (b) What is the optimal price and quantity for the monopolist? Is this resource allocation efficient? (c) Imagine you are an economist working for the FTC (Federal Trade Commission). Your goal is to maximize the efficiency in this market. Find the price that is consistent with average cost pricing. Will this improve efficiency in the market? Will the competition level increase?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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