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Chapter 27: Q.20 (page 622)

Consider panel (b) of Figure 27-2. The quantity Q1 is 2,000units, the price P1 is \(2per unit, the average cost AC1 is \)4per unit, and the vertical distance to point C is $6per unit. What is the dollar amount of the losses earned by this natural monopolist when its price is equal to its marginal cost of producing Q1 units?

Short Answer

Expert verified

the dollar amount of the losses earned by this natural monopolist is$4000

Step by step solution

01

Given Information

Natural Monopoly alludes to a market where there should exist just a single dealer. In certain business sectors, a solitary dealer is expected for proficient creation since that one firm can deliver the complete result at a lower cost than a few firms could.

02

Explanation

Assuming the long-run normal expense bend of the restraining infrastructure is constantly falling over the whole scope of market interest, then, at that point, it demonstrates that only one firm can serve the market.

We know,

Quantity Q1=2000units

PriceP1=$2per unit

Average cost AC1=$4per unit

The total revenue = $4000and the total cost = $8000

Hence the loss is=$4000-$8000=-$4000

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Most popular questions from this chapter

Are lemons problems likely to be more common in some industries and less common in others? Based on your answer to this question, should government regulatory activities designed to reduce the scope of lemons problems take the form of economic regulation or social regulation? Take a stand, and support your reasoning.

The table below depicts the cost and demand structure a natural monopoly faces.

a. Calculate total revenues, marginal revenue, and marginal cost at each output level. If this firm is allowed to operate as a monopolist, what will be the quantity produced and the price charged by the firm? What will be the amount of monopoly profit? [Hint: Recall that marginal revenue equals the change in total revenues (P脳Q)from each additional unit and that marginal cost equals the change in total costs from each additional unit.]

b. If regulators require the firm to practice marginal cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework? [Hint: Recall that average total cost equals total cost divided by quantity and that profits equal (P-ATC)脳Q.].

c. If regulators require the firm to practice average cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework?

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