Answer Happy

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.