2.6 A firm is a natural monopoly (Chapter 9). Its marginal cost curve is flat, and its average cost curve is downward sloping (because it has a fixed cost). The firm can perfectly price discriminate.

a. In a graph, show how much the monopoly produces, Q*.

b. Can it profitably produce where its price equals its marginal cost?

c. Show that a monopoly might shut down if it can only set a single price but will operate if it can perfectly price discriminate.