9. Regulating a natural monopoly Consider the local cable company, a natural monopoly. The following graph shows the monthly demand curve for cable services, the company's marginal-revenue (MR), marginal-cost (MC), and average-total-cost (ATC) curves. 100 90 80 70 60 PRICE (Dollars per subscription) 50 40 ATC 30 MC 20 10 MR D 0 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions)Short Run Quantity Price Pricing Mechanism (Subscriptions) (Dollars per subscription) Prot Long-Run Decision Profit Maximization v L v v Marginal-Cost Pricing V l v v Average-Cost Pricing V L v 7 Suppose that the government forces the monopolist to set the price equal to marginal cost. Complete the second row of the previous table. Suppose that the government forces the monopolist to set the price equal to average total cost. Complete the third row of the previous table. Under average-cost pricing, the government will raise the price of output whenever a firm's costs increase, and lower the price whenever a firm's costs decrease. Over time, under the average-cost pricing policy, what will the local cable company most likely do? Allow its costs to increase Work to decrease its costs Continue without saving