Question

2018 19 City Water is a natural monopoly that supplies fresh water to a particular city. Its cost and demand information are given below. Total Cost ($) Quantity Price (gallons) ($ per gallon) 1,000 85 35,000 2,000 80 74 3,000 4,000 67 64,000 90,000 113,000 133,000 150,000 5,000 59 6,000 50 An unregulated monopoly will have a of loss: $150,000 profit; $42,000 profit; $162,000 loss: $30,000

Answer 1

18. (c) profit ; $162,000
Explanation - Among all the quantities produced(in gallons), profit will be maximum at price level = $59.
i.e. Profit = Total revenue - Total cost = 295,000 - 133,000 = $162,000

19. (a) the regulation does not offer incentives for environmental improvement beyond what the set standard.
Explanation - As soon as the command and control regulation has been satisfied, nobody is incentivised to improve environmental conditions by reducing pollution. Hence, all the good that has been done might be undone.