*12.2 Study Exercise 11 (Static) Question The distribution of natural gas for re
ID: 1111304 • Letter: #
Question
*12.2 Study Exercise 11 (Static) Question 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 (m3) and quantity is the number of cubic metres per month. Complete parts (a) through (f) below a. Explain how you know that this firm is a natural monopoly OA. The MR curve is shifted to the left of the demand curve B. The LRAC curve is declining over the entire range of the demand curve ° C. The demand curve intersects the MC curve at its minimum. C D. The MC curve is declining over the entire range of the demand curve. 0.2 0.1 0.1 .08...i--- MOC b. If the firm is unregulated, what do you predict its price, output, and profits to be? Price: Round to the nearest cent.) MR Output:(Round to the nearest integer) Profits: Round to the nearest dollar.) Quantity (million cubic metre per month)Explanation / Answer
Answer
a)
The natural monopoly has to decrease long-run average total cost curve and the graph shows it which creates it the natural monopoly.
option a
b)
the monopoly maximize profit at MR=MC
where
P=0.32
Q=6
profit=(P-ATC)*Q
=(0.32-0.22)*6
=0.6 million
=$600000
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