The figure below 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.

Figure 15.4

Question

The figure below 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.
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Figure 15.4

Quizplus · Accepted Answer

If regulators allow the natural monopolist to earn only a normal profit, the monopolist's profit-maximizing output level will shift to the point where the average total cost curve intersects the demand curve (point C in the diagram). This leads to a lower price and higher output level, resulting in a greater consumer surplus compared to the unregulated monopoly. Therefore, allowing only a normal profit for the monopolist can result in a more efficient outcome with a greater overall welfare.

The Figure Below Shows the Cost and Revenue Curves Faced