ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337408059
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 15, Problem 2P
To determine
The market power, and the rationale for government regulations of firms with power.
Concept Introduction:
The relative ability of a company to control the
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Explain the table
Output
(Units)
Total Revenue (£)
Total cost (£)
Profit (£)
Marginal
revenue (£)
Marginal cost (£)
Change in profit (£)
0
0
3
-3
-
-
-
1
6
5
1
6
2
4
2
12
8
4
6
3
3
3
18
12
6
6
4
2
4
24
17
7
6
5
1
5
30
23
7
6
6
0
6
36
30
6
6
7
-1
7
42
38
4
6
8
-2
8
48
47
1
6
9
-3
(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?
(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?
Chapter 15 Solutions
ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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