Economics Problem

In Figure 27.2,

( a ) How much profit does an unregulated monopolist earn?

( b ) How much profit would be earned if MC pricing were imposed?

2. Do total profits (A) decrease, (B) increase, or (C) stay the same when new technology reduces average total costs (shifts ATC downward in Figure 27.2) in

( a ) An unregulated natural monopoly?

( b ) A price-regulated natural monopoly?

( c ) A profit-regulated natural monopoly?

3. Suppose a natural monopolist has fixed costs of $24 and a constant marginal cost of $2. The demand for the product is as follows: Price (per unit) $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 Quantity demanded (units per day) 0 2 4 6 8 10 12 14 16 18 Under these conditions,

( a ) What price and quantity will prevail if the monopolist isn’t regulated? ( a1 ) Price ( a2 ) Quantity

( b ) What price–output combination would exist with efficient pricing (MC 5 p )? ( b1 ) Price ( b2 ) Quantity

( c ) What price–output combination would exist with profit regulation ( c1 ) Price (zero economic profits)?

( c2 ) Quantity Illustrate your answers on the following graph: Price or Cost (dollars per unit) 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Quantity (per unit)