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ECON MACRO 5th Edition by William McEachern
Edition 5ISBN: 978-1305631946ECON MACRO 5th Edition by William McEachern
Edition 5ISBN: 978-1305631946 Exercise 3
REGULATING NATURAL MONOPOLIES The following graph represents a natural monopoly. 
a. Why is this firm considered a natural monopoly?
b. If the firm is unregulated, what price and output would maximize its profit? What would be its profit or loss?
c. If a regulatory commission establishes a price with the goal of achieving allocative efficiency, what would be the price and output? What would be the firm's profit or loss?
d. If a regulatory commission establishes a price with the goal of allowing the firm a "fair return," what would be the price and output? What would be the firm's profit or loss?
e. Which one of the prices in parts b, c, and d maximizes consumer surplus? What problem, if any, occurs at this price?
a. Why is this firm considered a natural monopoly?
b. If the firm is unregulated, what price and output would maximize its profit? What would be its profit or loss?
c. If a regulatory commission establishes a price with the goal of achieving allocative efficiency, what would be the price and output? What would be the firm's profit or loss?
d. If a regulatory commission establishes a price with the goal of allowing the firm a "fair return," what would be the price and output? What would be the firm's profit or loss?
e. Which one of the prices in parts b, c, and d maximizes consumer surplus? What problem, if any, occurs at this price?
Explanation
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Monopoly diagram:
The below diagram ill...
ECON MACRO 5th Edition by William McEachern
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