The following graph shows the demand (D) for cable services in the imaginary tow

Question

The following graph shows the demand (D) for cable services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local cable company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. 100 90 Monopoly Outoome 80 70 60 50 40 ATC 30 20 10 MR 0 2 4610 12 14 16 18 20 QUANTITY (Number of subscriptions)

Explanation / Answer

Equilibrium exists where MR = MC.

Following statements are true about the natural monopoly:

Natural monopoly occurs where average cost keeps on falling over the wide range of output. and single firm is better suited to such situation.

True or False:

This is true statement

Government intervention forces firm set price where AR or P =AC or AR or P=MC. Hence, it withers away profits of natural monopoly.

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