9. Regulating a natural monopoly Consider the local telephone company, a natural monopoly. The following graph shows the monthly demand curve for phone services and the company's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves. ? 100 8 70 8 8 PRICE (Dollars per subscription) 50 8 20 ATO MO 10 0 MR D 2 10 16 16 QUANTITY (Thousands of subscriptions) 10 20 Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints Complete the first row of the following table. Short Run Quantity Price (Subscriptions) (Dollars per subscription) Profit Long-Run Decision Pricing Mechanism Profit Maximization Marginal-Cost Pricing Average-Cost Pricing >> kalla 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. True or False: Under the average-cost pricing policy, the telephone company has no incentive to cut costs. True False