The distribution of natural gas for residential use is often a natural monopoly. The diagram to the right shows the cost and revenue curves for a profit-maximizing gas distribution firm. Price is given in dollars per cubic metre (m") and quantity is the number of cubic metres per month. Complete 0.38- 0.34 parts (2) through (f) below. 0.3- OD 0.28- a. Explain how you know that this firm is a natural monopoly. er cubic metre) 0.22 0.2- O A. The MC curve is declining over the entire range of the demand curve. 2 0.18-"-. O B. The MR curve is shifted to the left of the demand curve. LRAC O C. The demand curve intersects the MC curve at its minimum. 2 0.1- - - MC O D. The LRAC curve is declining over the entire range of the demand curve. 0.08 0.04 b. If the firm is unregulated, what do you predict its price, output, and profits to be? 0.02 MR Price: $ (Round to the nearest cent.) Quantity (million cubic metres per month) Output: (Round to the nearest integer.) Profits: $ (Round to the nearest dollar.) c. If the firm is regulated and required to use marginal-cost pricing, what is the predicted price, output, and profits? Price: $ (Round to the nearest cent.) Output: (Round to the nearest integer.) Profits: $ (Round to the nearest dollar.) d. If the firm is regulated and required to use average-cost pricing. what is the predicted price, output, and profits? Price: $ 'Round to the nearest cent.) Output: (Round to the nearest integer.) Profits: S (Round to the nearest dollar.) e. What is an important problem with the regulatory policy in part (c)? O A. The regulatory policy lowers confidence in the general public regarding the firm's ability to operate on its own. O B. The regulatory policy forces an outcome that is allocationly inefficient. O C. The regulatory policy forces the monopoly to produce at a quantity that nets a negative profit O D. The regulatory policy enhances the monopoly's grasp on the market by increasing barriers to entry due to the high output. f. What is an important problem with the regulatory policy in part (d)? O A. The regulatory policy increases the risk of the monopoly failing since the price and output were set using average-cost pricing. O B. The regulatory policy forces an outcome that is allocatingly inefficient. O C. The regulatory policy helps other firms wanting to enter the market by lowering barriers to entry. O D. The regulatory policy forces the monopoly to produce at a quantity that nets a negative profit