Question
Suppose we have a monopoly company. Politicians instruct the competition authority to examine the company and its market. a) Show graphically and discuss how the
Suppose we have a monopoly company. Politicians instruct the competition authority to
examine the company and its market.
a) Show graphically and discuss how the competition authority can regulate the price that
the company may demand in this market so that we maximize it
socio-economic efficiency.
b) It can be politically enticing to force the company to ask for a "too" low price.
Show graphically and discuss what welfare consequences this can have.
c) Discuss and show graphically under what circumstances a regulated ("low") price
can cause the monopolist to cease production altogether. Can these
circumstances show that it may be justified to allow monopolies and
monopoly pricing?
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