Natural Monopoly Regulation Thirsty Public Rejoices 1. Based on the information in the (fake) article graph the ATC and MC curves below (as structured MC is the same as AVC). AP Los Altos Hills CA - Recent advances in beer 2. What happens to ATC as output rises? production have suddenly transformed the structure of the beer market. It is not yet known to what 3. What will happen to the industry structure as firms implement this degree beer drinkers will production technique? (why?) (assume all beer tastes the same) benefit however. The change has resulted in a brewer of optimal efficiency having $1000 in 4. Assume demand is given by the relationship: fixed costs and then a constant marginal cost of P =10-.005Q. This means MR = 10 - .01Q. Graph these also. $1 per glass of beer. Beer producers are now 5. If only one unregulated profit-maximizing firm exists, what price and implementing this output level can we expect? Is this "efficient" for society? Why (not)? production technique. Students at Foothill College were particularly 6. Suppose the government forced this firm to charge at P = MC. hopeful that prices will fall. "Beer is good," said Shade in the firm's profits. one student. (cont pg 3) 7. Think of an alternative pricing scheme that avoids the problem in #6. $10 $6 $3