Exhibit 15.4

-Refer to Exhibit 15.4,which shows the cost and revenue curves faced by a monopolist.If regulators allow the natural monopolist to earn only a normal profit,it will result in a greater consumer surplus than that under an unregulated monopoly.

Question

Exhibit 15.4
 
-Refer to Exhibit 15.4,which shows the cost and revenue curves faced by a monopolist.If regulators allow the natural monopolist to earn only a normal profit,it will result in a greater consumer surplus than that under an unregulated monopoly.

Quizplus · Accepted Answer

This is because the monopolist will produce at a lower output level where marginal cost intersects with the average cost curve, resulting in a lower price and higher output level. This will increase consumer surplus compared to the unregulated monopoly, where the monopolist will produce at the output level where marginal revenue equals marginal cost, resulting in a higher price and lower output level.

Exhibit 15.4 -Refer to Exhibit 15.4,which Shows the Cost and Revenue Curves