Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for internet services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. PRICE (Dollars per subscription) 100 20 88288 2 10 ATC MC MR D 0 + + 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) (?. 品 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 1 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. 4 True or False: Over time, the internet service provider has a very strong incentive to lower costs when subject to average-cost pricing regulations. O True O False
Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for internet services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. PRICE (Dollars per subscription) 100 20 88288 2 10 ATC MC MR D 0 + + 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) (?. 品 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 1 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. 4 True or False: Over time, the internet service provider has a very strong incentive to lower costs when subject to average-cost pricing regulations. O True O False
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the
demand curve for internet services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total
cost (ATC) curve.
PRICE (Dollars per subscription)
100
20
88288 2
10
ATC
MC
MR
D
0
+
+
0
2
4
6
8
10
12
14
16
18
20
QUANTITY (Thousands of subscriptions)
(?.
Transcribed Image Text:品
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
1
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.
4
True or False: Over time, the internet service provider has a very strong incentive to lower costs when subject to average-cost pricing regulations.
O True
O False
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