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Consider the firm depicted in the diagram below. Price ($/output) $25 LMC LATC MR D 10 7 Quantity 500 700 1,000(a) Is the rm a

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Consider the firm depicted in the diagram below. Price ($/output) $25 LMC LATC MR D 10 7 Quantity 500 700 1,000(a) Is the rm a natural monopoly? (Hint: Does the rm's cost curve exhibit economies of scale over the relevant levels of output, i.e., when the good is demanded?) (b) Will this rm earn a prot if it is not subject to regulation? Briey explain your reason and shade an area in the graph that represents the deadweight loss, if any, due to the monopoly. (c) If the government requires the rm to charge no more than its marginal cost of pro- duction, o if the rm keeps operating, what is the prot-maximizmg (loss-minimizing) quan tity that will be sold? At what price? Evaluate the deadweight loss under this regime, if there is any. 0 In the long run, how many units will be sold? At what price? 0 What is the problem with the government capping prices at marginal cost? (d) Suppose the government allows rms to charge no more than their average total costs of production. How many units will this rm sell? At what price? Shade an area in the graph that represents the deadweight loss, if any, under this pricing regime. What is the problem with capping prices at average total cost

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