2.18 You are a manager of a natural monopoly with the costs and demand illustrated in the figure

a. What is the minimum efficient scale of production?

b. If you are free to maximize profit, what price do you set, and what quantity do you produce?
What is your economic profit or loss?

c. Suppose that a new firm enters the market and produces one-fourth of your production.
What is the firm’s average cost? If you do not change your price, is the new firm likely to make an economic profit or incur an economic loss? Explain your answers.

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Price and cost (cents per kilowatt hour) 20 18 16 14 12 10 LMC LAC 8 6 D 4 2 MR 0 5. 10 15 20 25 30 35 Quantity (billions of kilowatt hours per year)