12.5. A natural monopoly exists in an industry with a demand schedule P ! 100 Q....
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12.5. A natural monopoly exists in an industry with a demand schedule P ! 100 " Q. The marginal revenue schedule is then MR ! 100 " 2Q. The monopolist operates with a fixed cost F, and a total variable cost TVC !
20Q. The corresponding marginal cost is thus constant and equal to 20.
a) Suppose the firm sets a uniform price to maximize profit. What is the largest value of F for which the firm could earn zero profit?
b) Suppose the firm is able to engage in perfect firstdegree price discrimination. What is the largest value of F for which the firm could earn zero profit?
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