For many decades, the Royal Mail had a legal monopoly in the U.K. Companies in the postal business have increasing retur

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For many decades, the Royal Mail had a legal monopoly in the
U.K. Companies in the postal business have increasing returns to
scale, then constant returns to scale, and then decreasing returns
to scale. The Royal Mail’s minimum average cost is £2 at 100
million deliveries and its minimum marginal cost is £1 at 75
million deliveries. The demand for postage is zero at a price of
£10, and demand is 300 million deliveries at a price of £0.
Marginal revenue is zero at a price of £10 and 150 at a price of
£0. Note: Unless otherwise stated, the numerical answers in this
question do not need to be exact but should correspond to how you
have drawn your graph. (a) Draw a large graph showing the Royal
Mail’s average cost curve and its marginal cost curve. Show how
many deliveries would be made, and at what price, if Royal Mail
operated as a monopoly. Show the Royal Mail’s profit or loss on the
graph. (b) The government makes a law restricting the price
of postage to £1. Show the effect of this policy in the short-run
in a new, large graph. The graph should show the firm’s average
cost, marginal cost, marginal revenue, and consumer demand. How
much postage is bought? Show on your graph if the Royal Mail is in
profit or loss, and by how much. (c) New technology changes
delivery firms’ technology. Now, the minimum average cost is £2 at
1 million deliveries and a minimum marginal cost of £1 at 0.75
million deliveries. The government removes all price restrictions
and allows free entry. Describe the long-term outcome for this
market, using two graphs, one at the firm-level and one at the
market-level. How many firms will be operating in the long-run?
Note: a precise answer is possible for this question.