Question

Need help with this problem. Where do i plot the monopoly outcome on the graph and also answering the following questions. I will rate. thanks!

8. Natural monopoly analysis The following graph shows the demand (D) for cable services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local cable company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. 100 Monopoly outcome 80 70 t A 60 50 30 20 t 10 MR. 2 4 6 8 10 12 14 16 18 20 QUANTITY (Number of subscriptions)

Answer 1

Natural monopoly exists where the fixed cost is very high or productionrequires a scarce resource of the economy or market size is too small to support more than one firm. The average total cost is falls at every level of output which means that firm is experiencing economies of scale. It is inefficient to have more than one producer in case of natural monopoly. Therefore, correct statements are: 1. It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. 2. The cable company is experiencing economies of scale. Without government intervention, natural monopoly behaves like a monopoly firm. It can earn super normal profit or normal profit in the long run Therefore, above statement is False.