The following graph represents a natural monopoly. a. Why is this firm considered a natural monopoly?
The following graph represents a natural monopoly.a.Why is this firm considered a natural monopoly? Because (Long Run) Average Cost is always downward-sloping.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?
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