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Assume no government regulation. If the natural monopoly provides the profit-maximizing output, it will provide phone services to households per month at a price of $ and earn a profit of $ per month. Suppose that the government forces the monopolist to set the price equal to marginal cost. In the short run, under a marginal-cost pricing regulation, the monopolist will provide phone services to households per month at a price of $ If the government forces the natural monopoly to set its price equal to marginal cost, how will the company react in the long run? Because the firm suffers an economic loss under marginal-cost pricing, it will reduce its output to 3,500 households per month in the long run. Because the firm earns a profit under marginal-cost pricing, it will remain in the industry in the long run. Because the firm suffers an economic loss under marginal-cost pricing, it will exit the industry in the long run. Suppose that the government forces the natural monopoly to set its price equal to average cost. Under an average-cost pricing policy, the monopolist would provide phone services to households per month at a price of $ and earn a profit of $ per month. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, the local telephone company will most likely: Work to decrease its costs Not work to decrease its costs Consider the local telephone company, a natural monopoly. The following graph shows the demand curve for phone services, the company's marginal revenue curve (labeled MR), its marginal cost curve (labeled MC), and its average total cost curve (labeled AC). (Hint: Click a point on the graph to see its exact coordinates.) PRICE (Dollars per month) 160 140 120 100 80 60 40 20 0 0 1 MR 2 3 4 567 QUANTITY (Thousands of households per month) AC MC D 8 (?)

Assume no government regulation. If the natural monopoly provides the profit-maximizing output, it will provide phone services to households per month at a price of $ and earn a profit of $ per month. Suppose that the government forces the monopolist to set the price equal to marginal cost. In the short run, under a marginal-cost pricing regulation, the monopolist will provide phone services to households per month at a price of $ If the government forces the natural monopoly to set its price equal to marginal cost, how will the company react in the long run? Because the firm suffers an economic loss under marginal-cost pricing, it will reduce its output to 3,500 households per month in the long run. Because the firm earns a profit under marginal-cost pricing, it will remain in the industry in the long run. Because the firm suffers an economic loss under marginal-cost pricing, it will exit the industry in the long run. Suppose that the government forces the natural monopoly to set its price equal to average cost. Under an average-cost pricing policy, the monopolist would provide phone services to households per month at a price of $ and earn a profit of $ per month. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, the local telephone company will most likely: Work to decrease its costs Not work to decrease its costs Consider the local telephone company, a natural monopoly. The following graph shows the demand curve for phone services, the company's marginal revenue curve (labeled MR), its marginal cost curve (labeled MC), and its average total cost curve (labeled AC). (Hint: Click a point on the graph to see its exact coordinates.) PRICE (Dollars per month) 160 140 120 100 80 60 40 20 0 0 1 MR 2 3 4 567 QUANTITY (Thousands of households per month) AC MC D 8 (?)

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter11: Monopoly And Antitrust Policy
Section: Chapter Questions
Problem 7SCQ: From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural...
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Assume no government regulation. If the natural monopoly provides the profit-maximizing output, it will provide phone services to households per month at a price of $ and earn a profit of $ per month. Suppose that the government forces the monopolist to set the price equal to marginal cost. In the short run, under a marginal-cost pricing regulation, the monopolist will provide phone services to households per month at a price of $ If the government forces the natural monopoly to set its price equal to marginal cost, how will the company react in the long run? Because the firm suffers an economic loss under marginal-cost pricing, it will reduce its output to 3,500 households per month in the long run. Because the firm earns a profit under marginal-cost pricing, it will remain in the industry in the long run. Because the firm suffers an economic loss under marginal-cost pricing, it will exit the industry in the long run. Suppose that the government forces the natural monopoly to set its price equal to average cost. Under an average-cost pricing policy, the monopolist would provide phone services to households per month at a price of $ and earn a profit of $ per month. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, the local telephone company will most likely: Work to decrease its costs Not work to decrease its costs
Transcribed Image Text:Assume no government regulation. If the natural monopoly provides the profit-maximizing output, it will provide phone services to households per month at a price of $ and earn a profit of $ per month. Suppose that the government forces the monopolist to set the price equal to marginal cost. In the short run, under a marginal-cost pricing regulation, the monopolist will provide phone services to households per month at a price of $ If the government forces the natural monopoly to set its price equal to marginal cost, how will the company react in the long run? Because the firm suffers an economic loss under marginal-cost pricing, it will reduce its output to 3,500 households per month in the long run. Because the firm earns a profit under marginal-cost pricing, it will remain in the industry in the long run. Because the firm suffers an economic loss under marginal-cost pricing, it will exit the industry in the long run. Suppose that the government forces the natural monopoly to set its price equal to average cost. Under an average-cost pricing policy, the monopolist would provide phone services to households per month at a price of $ and earn a profit of $ per month. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, the local telephone company will most likely: Work to decrease its costs Not work to decrease its costs
Consider the local telephone company, a natural monopoly. The following graph shows the demand curve for phone services, the company's marginal revenue curve (labeled MR), its marginal cost curve (labeled MC), and its average total cost curve (labeled AC). (Hint: Click a point on the graph to see its exact coordinates.) PRICE (Dollars per month) 160 140 120 100 80 60 40 20 0 0 1 MR 2 3 4 567 QUANTITY (Thousands of households per month) AC MC D 8 (?)
Transcribed Image Text:Consider the local telephone company, a natural monopoly. The following graph shows the demand curve for phone services, the company's marginal revenue curve (labeled MR), its marginal cost curve (labeled MC), and its average total cost curve (labeled AC). (Hint: Click a point on the graph to see its exact coordinates.) PRICE (Dollars per month) 160 140 120 100 80 60 40 20 0 0 1 MR 2 3 4 567 QUANTITY (Thousands of households per month) AC MC D 8 (?)
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