Question

please do 3A.

3. Key Graphs a. Draw a natural monopoly. Identify the profit maximizing quantity, the socially optimal quantity, and the fair return quantity. Use the graph to explain why the government often regulates monopolies ( 15) b. Draw a price discriminating monopoly. Identify the profit maximizing quantity and shade in the area of

Answer 1

- Government - regulated Monopoly In case of natural monopoly AL gout will intervene and output and decided by prices would be it Om Xi - Pm price would it has excess settled because not be profit - Gert could set the pric at P, which has higher output and some abnormal probt OR . the socially optimum Output will be 0-X2 at price is maximum and firm earns Othe where output normal profit covering all costs.

Above diagram is showing Natural Monopoly. 1 Profit Maximising quantity is where Monopolist equals MC=MR, which is X 2. Socially optimum output is where Average Cost equals AR OR clemand Curve which fair Retwin quantity is where Mc equals AR Hverage Revenue curve which is X 2) Natural Monopoly could not be corrected by Market forces and If there is no Competitor and producer knows that even in future there will be no competition then He could use his market power and earn Excess Profit. figure showing Monopoly Price is pm and Quantity Xm which is lower than Govt regulated whice in which price is P and Quantity is Xe welfare in govt. regulation is higher because price is lower and quantity is higher Thats why Natural Monopoly are by Government.