Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 12, Problem 12QP
To determine
Explain the electric companies that have the nature of monopolies.
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Students have asked these similar questions
A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price, within limits, without quantity demanded falling
to zero. The main way monopolies retain their market power is through barriers to entry, which prevent other companies from entering monopolized
markets and competing for customers.
Consider the market for taxi services. In order to own and operate a taxi, drivers are required to obtain a taxi medallion.
Which of the following best explains the barriers to entry that exist in this scenario?
Increasing returns to scale
Control over an important input
O Legal barriers
Our textbook discusses two methods of regulating natural monopolies. One of them is price cap regulation. One of the following answers is an example of price cap regulation. Which one?
Group of answer choices
A government setting the price that a cable company can charge over a period of time by looking at the cable company's accounting costs and then adding a normal rate of profit.
A government setting a price level for a public utility several years in advance.
When a regulated public utility plays a large role in setting up the regulations that they will follow.
When a firm no longer is considered a natural monopoly because of decreased demand.
The figure to the right shows the market demand for electricity and the average total cost and
marginal cost of producing electricity for a utility company.
Suppose the utility company is a regulated natural monopoly. If government regulators want to
achieve economic efficiency, then they will regulate a price of $ per kilowatt hour. (Enter a
numeric response using a real number rounded to two decimal places)
Now suppose instead that government regulators want to eat the lowest price such that the utility
company will not suffer a loss so that it will continue to produce in the long run. If so, then i
government regulators will set a price of $ per kilowatt hour.
Price and cost (dollars per kilowatt hour)
0.52
048
044-
040-
0.36
0324
0.26
0.24
0.20
0.16
0.12
0.06
004
0.00+
ATC
MC
4
8 12 16 20 24 28 32 36 40 44 48
Quantity of kilowatt hours (in billions)
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Similar questions
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- Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for internet services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. PRICE (Dollars per subscription) 100 90 80 70 40 20 10 0 0 2 || Pricing Mechanism Profit Maximization 4 Complete the first row of the following table. MR 8 10 12 14 QUANTITY (Thousands of subscriptions) Marginal-Cost Pricing Average-Cost Pricing O True Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. O False 16 ATC -MC Complete the third row of the previous table. 18 20 D Short Run Price Quantity (Subscriptions) (Dollars per subscription) Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. Profit Complete the second row of the…arrow_forward1. Which of the following companies most closely resembles a monopoly? Walmart Microsoft Starbucks McDonald's Question Source: Chiang 4e - Economics Princip 39 36 近arrow_forwardHow would you go about trying to prove (or disprove) that electric companies and the like are (or are not) natural monopolies?arrow_forward
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- Suppose Tyco International has complete control over the plastic hangar market. Suppose the inverse demand for hangars is given by: P(Q) = 3 – Q/16000. Suppose that the total cost is given by: TC(Q) = 100 + Q What is the equilibrium price and quantity of hangars in the market if the market is monopolized? Calculate and graph the deadweight or welfare loss of the monopoly in this market.arrow_forwardWhat distinguishes a natural monopoly from other monopolies? What are the pros and cons of regulating natural monopolies? Does your answer differ depending on the specific product or industry being regulated?arrow_forwardConsider the only electric company in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for electricity services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. Complete the first row of the following table. Pricing Mechanism Short Run Long - Run Decision Quantity Price Profit (Subscriptions) (Dollars per subscription) Profit Maximization Marginal - Cost Pricing Average - Cost Pricing Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. Complete the second row of the previous table. Suppose now that the government decides to require the monopolist to set its price equal to average total cost. Complete the third row of the previous table. True or…arrow_forward
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