Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 12, Problem 12QP
To determine
Explain the electric companies that have the nature of monopolies.
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Students have asked these similar questions
Our textbook discusses two methods of regulating natural monopolies. One of them is price cap regulation. One of the following answers is an example of price cap regulation. Which one?
Group of answer choices
A government setting the price that a cable company can charge over a period of time by looking at the cable company's accounting costs and then adding a normal rate of profit.
A government setting a price level for a public utility several years in advance.
When a regulated public utility plays a large role in setting up the regulations that they will follow.
When a firm no longer is considered a natural monopoly because of decreased demand.
The figure to the right shows the market demand for electricity and the average total cost and
marginal cost of producing electricity for a utility company.
Suppose the utility company is a regulated natural monopoly. If government regulators want to
achieve economic efficiency, then they will regulate a price of $ per kilowatt hour. (Enter a
numeric response using a real number rounded to two decimal places)
Now suppose instead that government regulators want to eat the lowest price such that the utility
company will not suffer a loss so that it will continue to produce in the long run. If so, then i
government regulators will set a price of $ per kilowatt hour.
Price and cost (dollars per kilowatt hour)
0.52
048
044-
040-
0.36
0324
0.26
0.24
0.20
0.16
0.12
0.06
004
0.00+
ATC
MC
4
8 12 16 20 24 28 32 36 40 44 48
Quantity of kilowatt hours (in billions)
A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price, within limits, without quantity demanded falling
to zero. The main way monopolies retain their market power is through barriers to entry, which prevent other companies from entering monopolized
markets and competing for customers.
Consider the market for taxi services. In order to own and operate a taxi, drivers are required to obtain a taxi medallion.
Which of the following best explains the barriers to entry that exist in this scenario?
Increasing returns to scale
Control over an important input
O Legal barriers
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Similar questions
- am. 122.arrow_forwardThe three graphs below illustrate the market for electricity. The distribution of electricity is a natural monopoly; therefore, to take advantage of lower production costs, it is efficient to have only one firm in the market. Unfortunately, if a monopoly were allowed to provide electricity, it would charge a higher price and provide a smaller amount of electricity than would be desirable. In other words, the unregulated monopoly would charge the monopoly's profit-maximizing price. To avoid this, the government will allow a single firm to provide electricity, but the government will regulate the price. Let’s compare possible regulatory solutions.arrow_forwardConsider monopolies such as local water or electric public utilities that are regulated by a government entity, often called a Public Utilities Commission. What are the ways in which these companies are regulated? What are the reasons for granting monopoly power to the company? What are the advantages and disadvantages of doing so? Share your answers to these questions with your colleagues.arrow_forward
- 1) A firm is considering buying a patent that would give it a monopoly over sale of a new drug. If it buys the patent, the demand curve is it would face for its product is P = 10 – q, and it would have zero marginal costs of production and no other fixed costs. If the firm anticipates setting a single price to all consumers, what is the most that it would be willing to pay for the patent? 2) A firm is considering buying a patent that would give it a monopoly over sale of a new drug. If it buys the patent, the monopolist’s demand curve would be P = 10 – q, and it would have zero marginal costs of production and no other fixed costs. The firm also anticipates that the government will regulate the market in the following way: the government will set a maximum price of $4 per unit. In addition, the government will provide a subsidy to the monopolist equal to the increase in consumer surplus between the outcome in which the monopolist sets its profit-maximising price and in the market with…arrow_forwardThe following graph shows the demand (D) for gas services in the imaginary town of Utilityburg. The graph also shows the marginal-revenue (MR) curve, the marginal-cost (MC) curve, and the average-total-cost (ATC) curve for the local gas company, a natural monopolist. NOTE: read question carefully and answer accordinglyarrow_forward1. Which of the following companies most closely resembles a monopoly? Walmart Microsoft Starbucks McDonald's Question Source: Chiang 4e - Economics Princip 39 36 近arrow_forward
- 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 90 80 70 40 20 10 0 0 2 || Pricing Mechanism Profit Maximization 4 Complete the first row of the following table. MR 8 10 12 14 QUANTITY (Thousands of subscriptions) Marginal-Cost Pricing Average-Cost Pricing O True Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. O False 16 ATC -MC Complete the third row of the previous table. 18 20 D Short Run Price Quantity (Subscriptions) (Dollars per subscription) Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. Profit Complete the second row of the…arrow_forwardHow would you go about trying to prove (or disprove) that electric companies and the like are (or are not) natural monopolies?arrow_forwardHow do monopolies maximize profit? How is that (and how is it not) different from a perfectly competitive firm's profit-maximizing behavior?arrow_forward
- Consider the local cable company, a natural monopoly. The following graph shows the monthly demand curve for cable services and the company's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves.arrow_forwardThe concept of Economies of Scale shows that larger companies can produce products at lower costs per unit than small companies. Why is this concept used to justify natural monopolies?arrow_forward8. Natural monopoly analysis The following graph gives the demand (D) curve for SG LTE services in the fictional town of Streamship Springs. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local 5G LTE company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. PRICE (Dollars per gigabyte of data) 20 18 16 14 12 10 8 2 0 0 1 MR 2 3 4 5 67 QUANTITY (Gigabyles of data) 8 ATC MC- 9 10 Monopoly Outcomearrow_forward
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