Sketch graph a natural monopoly like a city transportation subway with the typical ATC, MC, and demand and MR functions
A.Label the profit maximizing monopoly price with a P1.
B.Label the typical public utility commission regulated price which requires no subsidy as P2.
C.Label the socially efficient price as P3.
D.Shade in the area of the subsidy required in one of the cases above.
E.Explain why a subsidy is often used for public transportation but not for municipal water supply.

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The Answer of Sketch graph a natural monopoly like a city transportation subway with the typical ATC, MC, and demand and MR functions
A.Label the profit maximizing monopoly price with a P1.
B.Label the typical public utility commission regulated price which requires no subsidy as P2.
C.Label the socially efficient price as P3.
D.Shade in the area of the subsidy required in one of the cases above.
E.Explain why a subsidy is often used for public transportation but not for municipal water supply.

Sketch Graph a Natural Monopoly Like a City Transportation Subway