Natural monopoly analysis
The following graph shows the demand (D) for electricity services in a particular town. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local electricity company, a natural monopolist.
Based solely on the graph, which of the following principal types of barriers to entry is the natural monopoly (the electricity company) likely to enjoy? (Choose one option only).
a - Costs of production such that a single producer is more efficient than a large number of producers
b - A government-created monopoly
c - Ownership of a scarce resource
The natural monopolist will maximize profit by choosing a price of (Blank: P1, P2, P3, P4) and a quantity of (Blank: Q1, Q2, Q3, Q4).
Suppose the government sets a regulatory price using the average-cost pricing rule. Under this regulation, the electricity company will supply (Blank: 0 Kilowatt-hours of electricity (KHOE), Q1 KHOE, Q2 KHOE, Q3 KHOE) . With this price regulation and without a government subsidy, the electricity company will ( Blank: be willing to stay in business / shut down) in the long run.
Please make sure to explain your answers. Thanks.
292,177 students got unstuck by Course
Hero in the last week
Our Expert Tutors provide step by step solutions to help you excel in your courses