6 Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints.Complete the first row of the following table.Pricing MechanismProfit MaximizationMarginal-Cost PricingAverage-Cost PricingShort RunQuantityPrice(Subscriptions) (Dollars per subscription)Suppose that the government forces the monopolist to set the price equal to marginal cost.ProfitComplete the second row of the previous table.Suppose that the government forces the monopolist to set the price equal to average total cost.Complete the third row of the previous table.Work to decrease its costsO Allow its costs to increaseLong-Run DecisionUnder 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 costsdecrease. Over time, under the average-cost pricing policy, what will the local cable company most likely do? 9. Regulating a natural monopolyConsider the local cable company, a natural monopoly. The following graph shows the monthly demand curve for cable services and the company'smarginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves.PRICE (Dollars per subscription)100908024081000233☆MR4 6 8 10 12 14QUANTITY (Thousands of subscriptions)16D18 20

Note: (i) Profit is maximized at intersection of MR & MC bends. (ii) Profit = Output * (Price -…

e first row of the following table. echanism timization Short Run Quantity Price (Subscriptions) (Dollars per subscription) Cost Pricing Cost Pricing t the government forces the monopolist to set the price equal to marginal cost. e second row of the previous table. Profit t the government forces the monopolist to set the price equal to average total cost. e third row of the previous table. Long-Run Decision

e first row of the following table. echanism timization Short Run Quantity Price (Subscriptions) (Dollars per subscription) Cost Pricing Cost Pricing t the government forces the monopolist to set the price equal to marginal cost. e second row of the previous table. Profit t the government forces the monopolist to set the price equal to average total cost. e third row of the previous table. Long-Run Decision

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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