Exhibit 15-5 Consider the natural monopoly depicted in exhibit 15-5.If regulators set the price so as to achieve the socially efficient level of output, how much profit will the monopolist earn?

Question

Exhibit 15-5  Consider the natural monopoly depicted in exhibit 15-5.If regulators set the price so as to achieve the socially efficient level of output, how much profit will the monopolist earn?

Quizplus · Accepted Answer

The socially efficient level of output occurs where the marginal cost curve intersects the demand curve, which is at a quantity of 4. At this quantity, the price would be $10. The monopolist's average total cost at this quantity is $22, meaning that the firm would lose $12 per unit sold. Therefore, if the firm produces 4 units, it will lose a total of $48 in profits.

Exhibit 15-5 Consider the Natural Monopoly Depicted in Exhibit