Question

119 - BADRUDOVA Activities and Due Dates > HWS The graph below depicts the cost curves of ABC Water and Heat. ABC has a natural monopoly in natural gas delivery in its immediate area MMOTUS Pris a. Place the point labelled "Monopoly pricing at the appropriate coordinates to indicate the monopoly price and quantity b. Suppose the overnment tries to achieve allocative efficiency PHMC) by imposing a marginal cost pricing rule, requiring the monopolist to sell price alto marginal cost. Place the point labelled "Magna copi t he appropriate coordinates indicate the firm's price and quantity under the role c. Under a m a l pricing rule, the affected fire would on d. Suppose the government imposes an average pricing rule, requiring the monopolist to set its price equal to average total cos. Piche po labelled "Average cou pricing at the appropriate coordinates to indicate the film's price and quantity under this rule e. Under anverage pricing rile, the affected tim' price would likely

Answer 1

Ans) Monopolist produces a quantity where MR = MC and charge that price on demand curve. This quantity is less than socially optimal quantity and price is more than MC. Here monopoly earns supernormal profit.

The graph below depicts the cost corves of ABC Water and Heat. ABC has a natural monopoly in natural gas delivery in its immediate area Mose cat pricing O y MMBTU a Place the point labelled "Monopoly pricing at the appropriate coondinates to indicate the monopoly price and quantity Phice MMT

When government asks monopoly to charge a price equal to marginal cost, this cost is less than ATC of firm and it can suffer loss. This quantity is socially optimal and price that is charged is also low. Here monopoly suffers loss.

Mospoly prong Maginal cpro g cod ricin Mapad cn Dnd revene Quty MMBTU

When government asks monopoly to charge a price at ATC, this quantity and price lies between monopoly price and socially optimal price. Here there is zero economic profit to the firm.

Mopoly pon Maginal co prio r cod picing Mapad o Marind Qunty MMBTU Price EMTUh