1. For many years, AT&T was a regulated monopoly, providing both local and long-distance telephone service.

a. Explain why long-distance phone service was originally a natural monopoly.

b. Over the past two decades, many companies have launched communication satellites, each of which can transmit a limited number of calls. How did the growing roles of satellites change the cost structure of long-distance phone service?

2. Consider the relationship between monopoly pricing and price elasticity of demand. Explain why a monopolist will never produce a quantity at which the demand curve is inelastic.