Lecture24 - Lecture 24 Natural monopoly Regulation...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 24 Natural monopoly Regulation Bilateral monopoly
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Natural monopoly Declining cost industries and network industries are sometimes called “natural monopolies.” The idea is that it is more efficient for a single firm to serve the entire market. Examples: telephone line-based systems; cable TV; electricity distribution.
Background image of page 2
Natural monopoly quantity MC AC Demand Marginal revenue price Monopoly price Efficient price
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Natural monopoly Monopoly price leads to inefficient production quantity MC AC Demand Marginal revenue price Monopoly price Efficient price Deadweight loss
Background image of page 4
Natural monopoly Competitive price is unsustainable quantity MC AC Demand Marginal revenue price Monopoly price Efficient price Losses in production
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Options: Traditional Rate-of-Return Regulation Allow a monopoly to serve the region, then regulate the price the firm charges so that it just covers average cost.
Background image of page 6
Natural monopoly quantity MC AC Demand Marginal revenue price Monopoly price Regulated price Efficient price
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Options: Traditional Rate-of-Return Regulation The regulator needs to know the AC curve and demand curve. Rate of return regulation Step 1: determine K = the rate base = capital investments on which a “normal return” is expected in order to give an incentive for investments in the activity. This provides for opportunity cost recovery for investors. Step 2: determine other costs of production
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 16

Lecture24 - Lecture 24 Natural monopoly Regulation...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online