11 15 20 passengers thousands per year monopolies are

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Unformatted text preview: onomic profits indefinitely • Being both productively and allocatively inefficient • Producing less and charging more • Creating an unequal distribution of income and wealth Monopoly Benefits Monopoly • Economies of scale – Increase in output brings a decrease in average cost • Economies of scope – increase in the range of goods produced decreases average total cost. • Incentives to innovation Regulating a Natural Monopoly Monopoly • • • • Tax Marginal cost pricing Average cost pricing Regulation Price and cost (dollars per hour) Taxing a Monoploy MC 20 ATCtax 14 10 ATC Economic Economic Tax Revenue profit $12 D MR 0 1 2 3 4 5 Quantity (haircuts per hour) Price and cost (cents per cubic metre) Regulating a Natural Monopoly Monopoly 100 Profit maximizing 80 Average cost pricing 60 ATC MR 10 0 1 2 Marginal cost pricing MC 3 4 Quantity (millions of cubic metres per day) (millions Regulating a Monopoly Regulating • Agency • Public ownership • Laws to restrict monopolistic behavior...
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