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The following diagram provides demand and cost curves for a product supplied by a natural monopoly. Use the information in the graph to answer the questions below. P ($ per week) 20 15 10 5 7.5 2 D 5 10 15/65 18 20 AFL-ATL-AVC-35-2-15 F=AFC• Q=1.5x/6.5=24,75 1. This natural monopolist has fixed costs of F = $24.75 0 0 25 30 D ATC MC=AVC Q R=(P-ATC) »Q=(2-35)×18=-27 2. A monopoly that charges a single, profit maximizing price, will earn a profit of π = -27 = 1/2*18 ² 20=185 TC = MC Q = 2×18=36 22²=TR-TC = 18³-36=144 3. A perfect price discriminating monopoly will earn a profit of π = 144 =MU24. If the monopolist introduces a two-part tariff, the profit maximizing strategy would be to charge an access fee of M = $ 62 and a user-fee of P = $ per unit. 5. With a profit maximizing two-part tariff, the monopolist would earn a profit of x = $_ 6. If the government were to impose a price regulation that capped price at marginal cost, the optimal output strategy of the firm would be Q = units, causing the firm to lose L = $_ would force the monopoly to shut down. 7. To avoid shutdown, the government would likely choose to raise their regulated price to equal the firm's average cost so that the firm could break even. An average cost price regulation would cause output to approximately equal Q and the dead-weight loss would be DWL = $ = which

The following diagram provides demand and cost curves for a product supplied by a natural monopoly. Use the information in the graph to answer the questions below. P ($ per week) 20 15 10 5 7.5 2 D 5 10 15/65 18 20 AFL-ATL-AVC-35-2-15 F=AFC• Q=1.5x/6.5=24,75 1. This natural monopolist has fixed costs of F = $24.75 0 0 25 30 D ATC MC=AVC Q R=(P-ATC) »Q=(2-35)×18=-27 2. A monopoly that charges a single, profit maximizing price, will earn a profit of π = -27 = 1/2*18 ² 20=185 TC = MC Q = 2×18=36 22²=TR-TC = 18³-36=144 3. A perfect price discriminating monopoly will earn a profit of π = 144 =MU24. If the monopolist introduces a two-part tariff, the profit maximizing strategy would be to charge an access fee of M = $ 62 and a user-fee of P = $ per unit. 5. With a profit maximizing two-part tariff, the monopolist would earn a profit of x = $_ 6. If the government were to impose a price regulation that capped price at marginal cost, the optimal output strategy of the firm would be Q = units, causing the firm to lose L = $_ would force the monopoly to shut down. 7. To avoid shutdown, the government would likely choose to raise their regulated price to equal the firm's average cost so that the firm could break even. An average cost price regulation would cause output to approximately equal Q and the dead-weight loss would be DWL = $ = which

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter24: Price-searcher Markets With High Entry Barriers
Section: Chapter Questions
Problem 15CQ
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The following diagram provides demand and cost curves for a product supplied by a natural monopoly. Use the information in the graph to answer the questions below. P ($ per week) 20 15 10 5 7.5 2 D 10 15 6.5 18 20 AFC-ATL-AVC-35-2= 1.5 F=AFC • Q=1.,5x/6.5=24.75 1. This natural monopolist has fixed costs of F = $24.75 0 TR = 1/2 x 18 × 20 = 185 P-ML-24. 0 5 25 30 2 D ATC R=(P-ATC) &Q=(2-35)×18=-27 2. A monopoly that charges a single, profit maximizing price, will earn a profit of π = -27 TC=MCQ = 2x 18 =36. PC=TR²-² TC = 18³-36=144 3. A perfect price discriminating monopoly will earn a profit of π = /44 If the monopolist introduces a two-part tariff, the profit maximizing strategy would be to charge an access fee of M = $ 62 and a user-fee of P = $ per unit. 5. With a profit maximizing two-part tariff, the monopolist would earn a profit of л = $ 6. If the government were to impose a price regulation that capped price at marginal cost, the optimal output strategy of the firm would be Q= units, causing the firm to lose L = $ would force the monopoly to shut down. 7. To avoid shutdown, the government would likely choose to raise their regulated price to equal the firm's average cost so that the firm could break even. An average cost price regulation would cause output to and the dead-weight loss would be DWL = $ approximately equal Q =_ - MC=AVC - Q which
Transcribed Image Text:The following diagram provides demand and cost curves for a product supplied by a natural monopoly. Use the information in the graph to answer the questions below. P ($ per week) 20 15 10 5 7.5 2 D 10 15 6.5 18 20 AFC-ATL-AVC-35-2= 1.5 F=AFC • Q=1.,5x/6.5=24.75 1. This natural monopolist has fixed costs of F = $24.75 0 TR = 1/2 x 18 × 20 = 185 P-ML-24. 0 5 25 30 2 D ATC R=(P-ATC) &Q=(2-35)×18=-27 2. A monopoly that charges a single, profit maximizing price, will earn a profit of π = -27 TC=MCQ = 2x 18 =36. PC=TR²-² TC = 18³-36=144 3. A perfect price discriminating monopoly will earn a profit of π = /44 If the monopolist introduces a two-part tariff, the profit maximizing strategy would be to charge an access fee of M = $ 62 and a user-fee of P = $ per unit. 5. With a profit maximizing two-part tariff, the monopolist would earn a profit of л = $ 6. If the government were to impose a price regulation that capped price at marginal cost, the optimal output strategy of the firm would be Q= units, causing the firm to lose L = $ would force the monopoly to shut down. 7. To avoid shutdown, the government would likely choose to raise their regulated price to equal the firm's average cost so that the firm could break even. An average cost price regulation would cause output to and the dead-weight loss would be DWL = $ approximately equal Q =_ - MC=AVC - Q which
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