Until the early 1990's, telecommunication services in Australia was a monopoly run

by Telecom Australia.

a) Explain what factors may cause telecommunications infrastructure to form a

monopoly even in the absence of government intervention.

b) Assuming marginal costs of production are slightly upward-sloping, perform

a qualitative Welfare Analysis on the effect of giving Telecom Australia a

monopoly in this market, relative to the efficient outcome.

c) The government wants to limit the size of any deadweight loss by instituting

price controls in this market. The government chooses to implement marginal

cost pricing, where Telecom Australia is required to charge price at average

total cost. Describe the short-run and long-run effects of this policy initiative.

d) Describe an alternative price control scheme the government could have implemented, and compare this new scheme to the policy initiative in part (c).

During the early 1990's, Telecom Australia was renamed to Telstra. At this time,

fixed costs of providing telecommunications fell drastically, until today where fixed

costs of retail provision of telecommunications are very low.

e) Using appropriate diagrams, compare the welfare analysis in the monopoly

case, to a welfare analysis of the long-run equilibrium outcome in the modern

market assuming the modern market is perfectly competitive.