Question

Question 1 0.5 pts Is a monopoly with the following cost curve facing the following demand curve a natural monopoly? P(Q)=100-50 C(Q) = 8,000 + 10 Q2 Yes No Cannot be determined from the information provided Question 2 0.5 pts Is a monopoly with cost curve C(Q)=100+100 facing demand curve P(Q)=300-10Q a natural monopoly? Yes O No Cannot be determined from the information provided

Answer 1

With a natural monopoly, average total costs (ATC) keep falling because of continuous economies of scale. Then the marginal cost (MC) is always below average total cost (ATC) over the whole range of possible output. In both these cases we have calculated the output level by equating MR=MC. Then we have calculated ATC and MC over this range of output. In both cases MC lies below ATC and ATC is falling continuously as output increases. Both of these are natural monopolies.

B MR = MC MC = 200 MR = 100-100 MR = MC- 200 = 100-100 300 = 100 9 = 10 o MC ATO 8000 +10o o 200 20 40 20 1 2 8010 o t 4020 co 269 6.66 60

PCO) = 300 100 (10) = 100 +100 MR = 300 - 200 MC = 10 MR = MC 300 - 200 = 10 290=200 299 = 0 29 20 ATL 100 + 10 110 43.3

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