Prior to the late 1990s, the same company that generated your electricity also distributed it to you over high-voltage lines. Since then, 16 states and the District of Columbia have begun separating the generation from the distribution of electricity, allowing competition between electricity generators and between electricity distributors.

a Assume that the market for electricity distribution was and remains a natural monopoly. Use a graph to illustrate the market for electricity distribution if the government sets price equal to average total cost.

b. Assume that deregulation of electricity generation creates a perfectly competitive market. Also assume that electricity generation does not exhibit the characteristics of a natural monopoly. Use a graph to illustrate the cost curves in the long-run equilibrium for an individual firm in this industry.