UNIT 4 FREE RESPONSE TAKE HOME NAME: PERIOD: QUESTION 1: 12 points total Use the following graph of a natural monopoly to answer the following questions. P A IMC ATC E D Q3 QA Q MR a. Explain how we know this graph depicts a natural monopoly (1 pt). b. Using the labeling on the graph, identify the PRICE and QUANTITY that coincides with each of the following: i. Profit maximizing price and quantity (1 pt) ii. Social optimal (competitive) price and quantity (1 pt)_ iii. Break even (fair return) price and quantity (1 pt) c. Would the demand curve be elastic, inelastic or unit elastic at Q1? How do you know? (2 pts) d. Use the labeling on the graph to identify the following areas when the monopolist is maximizing profit: i . Area of economic profit or loss (1 pt) ii. Area of deadweight loss (1 pt) e. If the monopolist were to operate at the social optimal price and quantity would they earn economic profit, earn economic loss, or break even? Explain how you know. (2 pts) f. What impact would an effective price ceiling have on the quantity sold (when compared to the monopolist profit maximizing quantity? Explain (2 pts)