Answer the following questions based on the diagram above. Does the diagram abov

Question

Answer the following questions based on the diagram above.

Does the diagram above describe a case of unsustainable natural monopoly? Explain.

Compute profits or losses under the marginal cost pricing option.

Write an equation describing a two-part tariff based on the assumption of three hundred and fifty-two (352) customers. The two-part tariff will generate a normal profit for Big Butte, assuming the fixed fee (F) is not exclusionary.

Explanation / Answer

No, the monopoly here is sustainable as the Marginal cost is always less than Average cost, so it is n't profitable for new firms to enter the Industry.

Loss = (0.17-0.25)*110,000

= -8,800

In case of two part tariff

lum sum amount = 0.8*352 = 281.6

and per unit amount = 0.17

So, two part tariff is = 281.6 + 0.17*KWH

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