Chapter 16 Homework 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 Suppose now that the government decides to require the monopolist to set its price equal to marginal cost. Complete the second row of the previous table. Suppose now that the government decides to require the monopolist to set its price equal to average total cost. Complete the third row of the previous table. True or False: Under the average-cost pricing policy, the electric company has no incentive to cut costs. True O False Grade It Now Save & Continue Continue without saving MacBook Air * EA - O) CO XO O V * OO C Z curve for electricity services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) Consider the only electric company in a small town, which you can assume operates as a natural monopoly. The following graph shows the demand MacBook Air I Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits ATC QUANTITY (Thousands of subscriptions) 8 LL 6 8 8 8 2 8 8 9 8 8 o Chapter 16 Homework PRICE (Dollars per subscription) # m curve . X Tools N1. Sources of monopoly power Monopolists, unlike competitive firms, have some market power. A monopolist can increase price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry-that is, other companies cannot enter the market to create competition in that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Exclusive Government- Ownership Created Economies of a Key Scenario Monopolies of Scale Resource In the electricity industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary wiring makes it risky and, most likely, unprofitable for competitors to enter the market. During most of the 1900s, the De Beers Group of South Africa was viewed as a monopoly because O O it controlled a large percentage of diamond production and sales At the state level, the Pennsylvania Liquor Control Board licenses only a certain number of dining O O establishments to serve alcohol within a geographic area. Grade It Now Save & Continue Continue without saving MacBook Air 1 * OO - O Z X