Homework answers / question archive / 8

8

Economics

Share With

8. Natural monopoly analysis The following graph shows the demand (D) for cable services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local cable company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. ? 100 90 + Monopoly Outcome 80 70 60 PRICE (Dollars per subscription) 50 40 ATC MC 30 20 10 MR D 0 0 4 6 8 10 12 14 16 N 18 20 QUANTITY (Number of subscriptions) Which of the following statements are true about this natural monopoly? Check all that apply. In order for a monopoly to exist in this case, the government must have intervened and created it. The cable company is experiencing economies of scale. The cable company is experiencing diseconomies of scale. It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. True or False: Without government regulation, natural monopolies always earn zero profit in the long run. True False