A firm is a natural monopoly (see Chapter 11).

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.

Use a graph to show how much the monopoly produces, Q*. Show graphically and mathematically that a monopoly might shut down if it can only set a single price but operate if it can perfectly price discriminate. M 3. Group Discrimination