lecture 10 - Discussion sections will not meet today Exams...

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1 Discussion sections will not meet today Exams returned in discussion section next week Your exam will be returned in the section for which you are enrolled, not the one you indicated on your exam Chapter 14: Regulation and Antitrust Law A. Regulation of natural monopoly Natural monopoly : the producer’s average costs always decrease with increasing quantity produced Examples of natural monopolies: electricity and natural gas distribution urban rail system cable television quantity $/unit average total cost marginal cost quantity $/unit average total cost marginal cost demand
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2 quantity $/unit average total cost marginal cost demand Q0 The socially efficient quantity is Q0 quantity $/unit average total cost marginal cost demand Q0 The monopolist would want to produce quantity Q1 at price P1 MR Q1 P1 deadweight social loss Regulatory strategies for natural monopoly: (1) Regulators set price equal to marginal cost quantity $/unit average total cost marginal cost demand Q0 Problem: if P = MC, firm makes loss firm’s loss
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