Microeconomics Question

CI. Answer this question according to Chapter 13 materials and lecture discussion. In a natural monopoly market, the market demand (D), the marginal cost (MC) and the average total cost (ATC) of the monopolist are plotted in the graph provided below. Assume the monopolist is the least powerful type of monopolist. (a) Add whatever necessary to the graph to help you explain how you can determine the profit- maximizing output and price of this monopolist. Calculate the profit and mark the area in the graph provided. Explain whether this monopolist is productive efficient and allocatio efficient. (b ) How can the government restore allocationefficiency in this market? Add whatever necessary to the graph to help you explain how that policy can be implemented. Is there any shortcoming of this policy? (c) Can you propose a sustainable compromise as an alternative to the policy recommended in part (b)? Add whatever necessary to the graph to help you explain how this alternative policy can be implemented. Why this policy ends up in a "lose-lose-lose-lose" situation? (a) 7 marks; (b) 6 marks; and (c) 8 marks 14 D 12 10 8 6 4 ATC 2 MC 20 40 60 80 100 120 140 Q Page 1 of 1