9. Regulating a natural monopoly

Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand curve for internet services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve.

100 90 80 70 60 PRICE (Dollars per subscription) 50 7, 39 ATC 30 MC 20 10 MR D 2 6 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits. Complete the first row of the following table. Short Run Quantity Price Pricing Mechanism (Subscriptions) (Dollars per subscription) Profit Long-Run Decision Profit Maximization Marginal-Cost Pricing Average-Cost Pricing