Consider the local telephone company, a natural monopoly. The following graph sh

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, COST, MR (Dollars per month) 100 90 80 70 60 50 40 30 ATC 20 10 Demand MC MR 0 6 12 18 24 30 36 42 48 54 60 QUANTITY (Thousands of households per monthl Assume no government regulation. If the natural monopoly provides the profit-maximizing output, it will provide phone services to per month households per month at a price of and earn a profit of Suppose that the government forces the monopolist to set the price equal to marginal cost. In the short run, under a marginal-cost pricing regulation, the monopolist will provide phone services to at a price of households per month

Explanation / Answer

a) 25 thousands of households per month

b) $ 35

c) Profit = (35 - 19) x 25 = 15 x 25 = $ 375

d) 51 thousands of households per month

e) $ 10

f) An economic loss

g) 46 thousands of households per month

h) $ 14

i) Loss = (14 - 10) x 46 = $ 184 thousand

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