The accompanying diagram illustrates your local electricity companys natural monopoly

Chapter 0, Problem 18

(choose chapter or problem)

The accompanying diagram illustrates your local electricity companys natural monopoly. The diagram shows the demand curve for kilowatt-hours (kWh) of electricity, the companys marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost (ATC) curve. The government wants to regulate the monopolist by imposing a price ceiling. a. If the government does not regulate this monopolist, which price will it charge? Illustrate the inefficiency this creates by shading the deadweight loss from monopoly. b.If the government imposes a price ceiling equal to the marginal cost, $0.30, will the monopolist make a profit or lose money? Shade the area of profit (or loss) for the monopolist. If the government does impose this price ceiling, do you think the firm will continue to produce in the long run? c. If the government imposes a price ceiling of $0.50, will the monopolist make a profit, lose money, or break even?