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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.


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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.

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"First question: Please choose one option. No option was chosen. Last question: ( Blank: be willing to stay in business / shut down). Please choose ONE option. This is a drop-down menu. The answer can't be both."

Natural monopoly analysis The following graph shows the demand (D) for electricity services in a particular town. The graph also shows the marginal
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