- 9 Regulating A Natural Monopoly Consider The Local Telephone Company A Natural Monopoly The Following Graph Shows The 1 (9.26 KiB) Viewed 12 times
- 9 Regulating A Natural Monopoly Consider The Local Telephone Company A Natural Monopoly The Following Graph Shows The 2 (44.52 KiB) Viewed 12 times
- 9 Regulating A Natural Monopoly Consider The Local Telephone Company A Natural Monopoly The Following Graph Shows The 3 (28.39 KiB) Viewed 12 times
- 9 Regulating A Natural Monopoly Consider The Local Telephone Company A Natural Monopoly The Following Graph Shows The 4 (7.34 KiB) Viewed 12 times
PRICE (Dollars per subscription) 100 90 80 70 60 40 30 20 10 O 0 2 6 8 11, 35 4 QUANTITY (Thousands of subscriptions) ATC MC MR 10 12 14 16 18 20 D
Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints. Complete the first row of the following table. Pricing Mechanism Profit Maximization Marginal-Cost Pricing Average-Cost Pricing Short Run Quantity (Subscriptions) (Dollars per subscription) Complete the second row of the previous table. Price Profit Suppose that the government forces the monopolist to set the price equal to marginal cost. Suppose that the government forces the monopolist to set the price equal to average total cost. Long-Run Decision
True or False: Over time, the telephone company has a very strong incentive to lower costs when subject to average-cost pricing regulations. O True False H