Part B: Short Answer

1. "No firm is completely sheltered from rivals; all firms compete for consumer dollars. If that is so, then pure monopoly does not exist." Do you agree? Explain.

2.Explain verbally and graphically how price (rate) regulation may improve the performance of monopolies. In your answer distinguish between (a) socially optimal (marginalcost) pricing and (b) fairreturn (averagetotalcost) pricing. What is the "dilemma of regulation"?

3. It has been proposed that natural monopolists should be allowed to determine their profitmaximizing outputs and prices and then government should tax their profits away and distribute them to consumers in proportion to their purchases from the monopoly. Is this proposal as socially desirable as requiring monopolists to equate price with marginal cost or average total cost?