An unregulated natural monopoly bottles Elixir, a unique health product that has no substitutes. The monopoly’s total fixed cost is $150,000, and its marginal cost is 10¢ a bottle. Figure 1 illustrates the demand for Elixir.

1. How many bottles of Elixir does the monopoly sell and what is the price of a bottle of Elixir? Is the monopoly’s use of resources efficient?

2. Suppose that the government introduces a marginal cost pricing rule. What is the price of Elixir, the quantity sold, and the monopoly’s economic profit?

3. Suppose that the government introduces an average cost pricing rule. What is the price of Elixir, the quantity sold, and the monopoly’s economic profit?