Question

Consider the local telephone company, a natural monopoly. The following graph shows the demand curve for phone services, the company's marginal revenue curve (labeled MR), Its marginal cost curve (labeled MC), and its average total cost curve (labeled ATC). You can hover over the points on the graph to see their exact coordinates. PRICE (Dollars per month) 200 180 ATC 160 140 120 100 Demand 80 60 40 MC 20 MR - 0 6 12 18 24 30 36 42 48 54 60 QUANTITY (Thousands of households per monthl

Answer 1

Suppose gut. now force to let PE AC. So, At P. Ac Case, Ac will cut a point on demand curive and at that point where, P = 40 and quantity = 40 and profita Pola 0 because AC will in tersect demand Cawe at (40, 40) point So, The monopolist. would provide services to 40 per month at a price of $40, and earna profit of e per household month. Under toeria Ac pricing if gout increase price of output when firm's cast increase and to decrease Price of output when firm's cost decrease. So, when firms cost is declining, Ate will also come down soas Price So, Profit will become negetive So form not work to decrease its cost So, option ③ is correct option