23.8) Two Natural Monopolies: Microsoft versus Utility Companies: We suggested in the text that there may be technological reasons for the barriers to entry required for the existence of a monopoly. In this exercise, we consider two examples. Microsoft and your local utilities company have one thing in common: They both have high fixed costs with low variable costs. In the case of Microsoft, the fixed cost involves producing software which, once produced, can be reproduced cheaply. In the case of your local utility company, the fixed cost involves maintaining the infrastructure that distributes electricity to homes, with the actual delivery of that electricity costing relatively little if the infrastructure is in good shape. a. Let's begin with Microsoft. Draw a graph with low constant marginal costs and a downward-sloping demand curve. Add Microsoft's marginal revenue curve and indicate which point on the demand curve Microsoft will choose (assuming, until later chapters, that it is not worried about potential competitors). Then draw a second and similar graph for your local utilities company. "you should assume a power company has higher Exp (FC) b. There is one stark difference between Microsoft and your local utilities company: Microsoft has not asked the government for help to allow it to operate but has instead been under strict scrutiny by governments around the world for potential abuse of its market power. Utility companies, on the other hand, have often asked for government aid in regulating prices in such a way that the companies can earn a reasonable profit. What is missing from your two graphs that can explain this difference? c. Put into words the "problem" in the two cases from a government's perspective (assuming the government cares about efficiency).