ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 2.3P
A
To determine
The reason for considering the firm as a natural
B
To determine
In case of an unregulated firm, the
C
To determine
The price and output when the regulatory commission establishes a price with the aim of achieving
D
To determine
The price and output when the regulatory commission establishes a price with the aim of allowing from a normal profit and to determine the profits or losses of the firm.
E
To determine
From the prices already calculated in part b, c and d which prices maximizes the
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(Regulating Natural Monopolies) The following graph rep-
resents a natural monopoly.
a. Why is this firm considered a natural monopoly?
b. If the firm is unregulated, what price and output would
maximize its profit? What would be its profit or loss?
c. If a regulatory commission establishes a price with the
goal of achieving allocative efficiency, what would be
the price and output? What would be the firm's profit
or loss?
(Regulating Natural Monopolies) The following graph representsa natural monopoly.a. Why is this firm considered a natural monopoly?b. If the firm is unregulated, what price and output wouldmaximize its profit? What would be its profit or loss?c. If a regulatory commission establishes a price with thegoal of achieving allocative efficiency, what would bethe price and output? What would be the firm’s profitor loss?d. If a regulatory commission establishes a price with thegoal of allowing the firm a normal profit, what would bethe price and output? What would be the firm’s profitor loss?e. Which one of the prices in parts b, c, and d maximizesconsumer surplus? What problem, if any, occurs at thisprice?
5
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Similar questions
- In what sense is a natural monopoly natural?arrow_forwardWhat is cost-plus regulation?arrow_forwardIntellectual property laws are intended to promote innovation, but some economists, such as Milton Friedman, have argued that such laws are not desirable. In the United States, there is no intellectual property protection for food recipes or for fashion designs. Considering the state of these two industries, and hearing in mind the discussion of the inefficiency of monopolies, can you think of any reasons why intellectual property laws might hinder innovation in some cases?arrow_forward
- The McDonald's table shows information you found out about McDonald’s production capabilities and costs when operating as a monopoly. ( fill it out the table) As a monopoly, how much should McDonald’s charge for its hamburgers to maximize profit? What could McDonald’s do to create barriers that would prevent others from entering the markets and would make it harder for remaining hamburger shops to remain in the market?arrow_forward(Figure: Short-Run Monopoly in the Market for Electricity) Use Figure: Short-Run Monopoly in the Market for Electricity. The marginal cost of producing the profit-maximizing quantity is: Price and cost NOR OP. SON. O O O Q. 0 P Q runscript RSTU MC MR ATC AVC Demand Quantity (KWH per pound)arrow_forward9. Regulating a natural monopoly Consider the only electric company in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for electricity 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) 8 288 VR 10 QUANTITY (Thousands of subscriptions) MR Complete the first row of the following table. Pricing Mechanism Profit Maximization Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. Marginal-Cost Pricing Average-Cost Pricing ATC MO D Short Run Quantity Price (Subscriptions) (Dollars per subscription) Profit Long-Run Decisionarrow_forward
- 19. A monopoly is a market in which there is only one seller. This situation hurts consumers (buyers). But how, precisely? Explain the things that a monopoly does that hurt consumers.arrow_forwardD9)arrow_forward(Figure: Demand, Revenue, and Cost Curves for Thneeds) Use Figure: Demand, Revenue, and Cost Curves for Thneeds. Thneeds and Things is a monopolist in the thneed ("things we need") market. If the government wants to regulate Thneeds so that an efficient outcome is reached, it would impose a price ceiling of: Price of thneeds $100 90 $40. $46. $50. $65. 80 70 60 50 40 30 20 10 0 20 MR D MC ATC 60 100 140 180 220 Quantity of thneedsarrow_forward
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