Problem
Define natural monopoly. Draw the demand, marginal revenue, marginal cost, and average cost curves for a natural monopoly.
a. What does the size of a market have to do with whether an industry is a natural monopoly?
b. What are the two problems that arise when the government regulates a natural monopoly by limiting price to be equal to marginal cost?
c. Suppose that a natural monopoly is required to charge average total cost. On your diagram, label the price charged and the deadweight loss to society relative to marginal cost pricing.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.