The given terms refer to different approaches to regulating natural monopolies. Place each with its corresponding description. A firm is allowed to price its product so that it earns a normal return on capital invested. Firms are directed to charge the price associated with the extra cost of making each unit. This pricing rule often leads to firms earning a negative profit. Firms charge a price that allows them to earn only a normal economic profit. This places maximum limits on the price firms can charge for a good Answer Bank average cost pricing rule rate of return regulation marginal cost pricing rule price caps

The given terms refer to different approaches to regulating natural monopolies. Place each with its corresponding description. A firm is allowed to price its product so that it earns a normal return on capital invested. Firms are directed to charge the price associated with the extra cost of making each unit. This pricing rule often leads to firms earning a negative profit. Firms charge a price that allows them to earn only a normal economic profit. This places maximum limits on the price firms can charge for a good Answer Bank average cost pricing rule rate of return regulation marginal cost pricing rule price caps

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 88 70 00 50 40 30 20 10 0 0 11 11 2 11 11 11 MR ATC -MC- 468 10 12 14 16 QUANTITY (Thousands of subscriptions) 18 20 D ?
Suppose that your state is considering a law that would force all monopolies to charge no more than their average total costs (ATC) of production. Which of the following statements correctly explains to your legislator the pros and cons of this approach? Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the option once to place a check mark. For incorrect answer(s), click the option twice to empty the box. check all that apply Pro: this will increase the profit earned by the monopolist. Con: it is very hard to accurately determine what ATC truly is. Con: the monopolist will have an incentive to overstate costs. Pro: the monopolist will have an incentive to lower costs. Pro: this will reduce deadweight loss by increasing production quantity. Con: consumer surplus is reduced as producers will increase production and increase price.
Problem 3. Suppose a company has a fixed cost of 20 and a marginal cost that is constant at 2. The demand curve is P=24-Q. Explain why this is a natural monopoly. Contrast regulation that sets the price at marginal cost with regulation that sets it at average cost. How do the outputs and surpluses differ? Calculate the DWL under average cost pricing. Illustrate outputs, prices, and DWL in a diagram.
2. Study Questions and Problems #2 A is the one and only producer in a market, while a market. Due in large part to these characteristics, a is one of many producers in a faces a horizontal demand curve, and a faces a downward-sloping demand curve. Grade It Now Save & Continue
Exercise 3.8. Dayna's Doorstops, Inc. (DD) is a monopolist in the doorstop industry. Its cost is C = 100 - 5Q + Q², and demand is P = 55 - 2Q. a) What price should DD set to maximize profit? What output does the firm produce? How much profit and consumer surplus does DD generate? b) What would output be if DD acted like a perfect competitor and set MC = P? What profit and consumer surplus would then be generated? c) What is the deadweight loss from monopoly power in part (a)? d) Suppose the government, concerned about the high price of doorstops, sets a maximum price at $27. How does this affect price, quantity, consumer surplus, and DD's profit? What is the resulting deadweight loss? e) Now suppose the government sets the maximum price at $23. How does this decision affect price, quantity, consumer surplus, DD's profit, and deadweight loss? f) Finally, consider a maximum price of $12. What will this do to quantity, consumer surplus, profit, and deadweight loss?
The following diagram illustrates the demand curve facing a monopoly in an industry with no economies or diseconomies of scale and no fixed costs. In the short and long run, MC = ATC. 1.) Using the point drawing tool, indicate the monopoly output and monopoly price (Monopoly) in the figure to the right. Attach the appropriate provided label. 2.) Using the rectangle drawing tool, shade in monopoly profits (Profit). Attach the appropriate provided label. 3.) Using the triangle drawing tool, shade in the "excess burden" or "welfare costs" of the monopoly (Excess burden). Attach the appropriate provided label. Note: Carefully follow the instructions above and only draw the required objects. The monopoly creates excess burden because O A. it produces where price equals marginal cost. B. it produces an inefficiently large amount of output. O C. it charges a price that is too low. D. it produces where marginal cost is positive. E. it produces where price is above marginal cost. MR Output, Q…
A monopolistic firm operates in two separate markets, Market A and Market B. The firm can sell its product at different prices in each market due to different demand conditions. In Market A, the firm faces a demand curve given by Q_A = 100 - P_A, where Q_A is the quantity demanded in Market A and P_A is the price charged in Market A. In Market B, the demand curve is Q_B = 80 - 2P_B, where Q_B is the quantity demanded in Market B and P_B is the price charged in Market B. The firm has a total production capacity of 120 units. What price should the firm charge in each market to maximize its total revenue?
The following diagram illustrates the demand curve facing a monopoly in an industry with no economies or diseconomies of scale and no fixed costs. In the short and long run, MC = ATC. 1.) Using the point drawing tool, indicate the monopoly output and monopoly price (Monopoly) in the figure to the right. Attach the appropriate provided label. 2.) Using the rectangle drawing tool, shade in monopoly profits (Profit). Attach the appropriate provided label. 3.) Using the triangle drawing tool, shade in the "excess burden" or "welfare costs" of the monopoly (Excess burden). Attach the appropriate provided label. Note: Carefully follow the instructions above and only draw the required objects. The monopoly creates excess burden because A. it produces where marginal cost is positive. B. it produces where price equals marginal cost. OC. it produces an inefficiently large amount of output. D. it produces where price is above marginal cost. E. it charges a price that is too low. Click the graph,…
Lagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not able price discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) curves that Lagatt Green faces for beer in Lightington. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. PRICE (Dollars per bottle) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 D MC D 15 20 25 30 3.5 QUANTITY (Thousands of bottles of beer) 45 ATC MR Price (Dollars per bottle) 2.00 2.25 40 Monopoly Outcome…
true or false Natural monopolies are regulated by government agencies.
100 90 80 70 60 50 40 АТС MC 30 20 10 MR D 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) PRICE (Dollars per subscription)
Competition policy can be defined as the set of policies and laws which regulate monopolies. which regulates mergers and cartel formation. which ensure that competition in the marketplace is not restricted in such a way as to reduce economic welfare which enhances price competition. none of the other answers are correct.