Exhibit 15-5 The natural monopoly depicted in exhibit 15-5, if unregulated would set their price at what level?

Question

Exhibit 15-5  The natural monopoly depicted in exhibit 15-5, if unregulated would set their price at what level?

Quizplus · Accepted Answer

The natural monopoly exhibits decreasing average total cost over the entire range of output that it produces. This means that the firm has the ability to produce and sell at a lower cost than any potential competitor, leading to a situation of a single firm dominating the market (hence the term "monopoly"). If unregulated, the firm would choose to charge the price that maximizes its profits, which is where marginal revenue equals marginal cost. In this case, that would be at a price of $25, where the firm would produce and sell 6 units of output.

Exhibit 15-5 the Natural Monopoly Depicted in Exhibit 15-5