Please help with the last question, part h onl. . It is a. the bottom. I think uyou may need the information on the other parts to complete part h, hopefully not the graphs though because they would not upldoad

Ampstand is a natural monopolist earning economic profits.

Draw a graph of Ampstand, labeling the profit-maximizing price P_m, the profit-maximizing quantity Q_m, and the allocatively efficient quantity Q_SO. Shade the area of deadweight loss.

To graph the natural monopolist, Ampstand, I drew in the long run average total cost curve with a downward trend. The marginal cost curve is flat as the production costs are near a constant level and so it is not a swoosh shape. The marginal cost curve is below the long run average total cost curve along the whole graph. I made two marks on the x-axis. The marginal revenue curve should fall twice as fast as the demand curve. I drew these two lines in to reflect that relationship.

Without intervention, Ampstand will product like any other market structure even though it is a monopoly. This means that the profit maximizing quantity, Q_m, will be where marginal revenue is equal to marginal cost. I have found the intersection of MR and MC and drew a dotted vertical line down to the x-axis so show this profit maximizing quantity, Q_m. I extended this dotted line up vertically to show where it will intersect the demand curve. This is how the price will be determined. The price Ampstand will set is determined by the demand at the profit maximizing quantity. I connected the point where the vertical line the represents the profit maximizing quantity intersects the demand line using a horizontal line over to the y-axis to show the profit maximizing price, P_m. The socially optimal production level is where marginal cost intersects demand. I found on the graph where MC=D and drew a dotted line down to the x-axis to show this socially optimal quantity and labeled it Q_so. The deadweight loss region is a triangle. The triangle is formed be the difference in price at the socially optimal quantity (we were not instructed to label this point on the y-axis, but it is already a horizontal line on the graph as the marginal cost curve) and the price that the unregulated Ampstand will charge, P_m. Another side of this triangle is the difference between the profit-maximizing quantity Q_m, and the socially optimal quantity Qso_. The third side of the triangle is the segment of the demand curve between the socially optimal quantity and the profit maximizing quantity.

If Ampstand is earning economic profits, why would other firms not enter the market? Explain.

Ampstand is a natural monopoly. That means Ampstand is a firm in a market with high or insurmountable barriers to entry. Other firms would want to enter the market to enjoy the economic profits. However tother firms are unable to overcome the barriers to entry. There may be high costs associated with the infrastructure necessary to conduct business. Examples of natural monopolies are utilities, water supply, sewage treatment, waste disposal, electricity services, and internet services. Firms that see Ampstand making a profit and want to enter the market will determine it will not be profitable for them.

The government decides to regulate Ampstand's price and follows a fair-return policy. On your graph from part (a), label this price P_FR and the new output quantity Q_FR.

Following a fair-return policy, Ampstand would produce where it is normal economic profits. This occurs when average total cost is equal to demand. On my graph I determined the intersection point of LRATC and D. I dropped a dotted vertical line down to the x-axis to determine the new output quantity under the government regulations and labeled it Q_FR. From the intersection of LRATC and D, I also drew in a dotted horizontal line over to the y-axis to determine the new market price of Ampstands product and labeled it P_FR.

If Ampstands total revenue at P_FR changes to $100 million, what must its total cost be at this productive quantity?

In part (c) the government was said to have initiated a fair return policy to regulate Ampstand. That means the government would like for Ampstand to produce at the socially optimal quantity. However, at the socially optimal quantity, the price would be below the long run average total cost incurred by Ampstand. Instead of producing at the socially optimal quantity, Ampstand would produce at the regulated quantity Q_FR because they would then be earning normal (zero) economic profits. Normal economic profits imply that total profit is zero. Total profit is the difference between total revenue and total cost. If the total revenue at P_FR is $100,000,000 then the total cost at P_FR must also be $100,000,000 for the difference between total revenue and total cost to be zero.

(e) Determine the output quantity from part (d) if P_FR is $10. The demand curve intersects the y-axis at $15. What is the consumer surplus with the government intervention?

Consumer surplus on the graph would be a triangular region. One of the lengths of the triangle is the difference between the prices P_FR and the y intercepts. This difference is $15 $10 = $5. The other length of the triangle is the quantity Q_FR. This is not given in part (e) but can be determined using information from part (d). Total revenue is calculated by multiplying price by quantity. Quantity then it he quotient of total revenue divided by price. We were given that total renenue at P_FR is $100 million. We are given here the P_FR is $10. That means that Q_FR = $100 million / $10 which is 10 million units. The consumer surplus triangle area is then calculated by (1/2) (10 million) ($5). Consumer surplus under the government regulation is $25,000,000.

How would the government action in part (c) affect the deadweight loss in Ampstand's market?

The government regulation of Ampstand means that deadweight loss would decrease. Some of the deadweight loss was usurped by consumer surplus. The government regulation was means to move Ampstand to produce a quantity closer to the socially optimal quantity.

What would the government have to do to get Ampstand to produce at the socially optimal quantity and stay in the market in the long run? Explain.

In order to have Ampstand produce at the socially optimal quantity the government would need to make it possible for firms to enter the market and compete. If the government tried to force Amstand to produce at the socially optimal quantity in this current market, the price would be lower than the average total cost. Ampstand needs to be at least able to return normal economic profits in order to stay in the market in the long run. That means the need to be able to operate the the price P_FR, which does not align with the socially optimal quantity. The government would need to be able to remove or at least decrease some of the barriers to entry in order to have competing firms enter the market. I suppose they could try to force the existing Ampstand company to split into different smaller companies. This would still only result in an oligopoly. It would also be likely that, since they started as one parent company, the smaller companies may participate in the illegal act of collusion. They would try to keep prices higher and turn an economic profit. The only real answer to producing a the socially optimal quantity is to create, encourage, and allow for a perfectly competitive market.

(h) Wattsit is a small firm that sells a complementary good to Ampstand's product in a perfectly competitive market. Assuming Wattsit was in long-run equilibrium, illustrate thhe short-run effect of the government intervention from part (e) on Wattsit's supply and demand in a separate graph. If Wattsit earns any economic profit or loss, shade it.