Lab
The Natural Monopoly Graph
The graph shows one firm whose average total cost falls at every quantity buyers would demand, with a constant marginal cost below it. Name the two downward-sloping lines and title both axes first. Then drag the round point to the price and quantity the situation asks for: the firm's own choice, or the price a regulator sets.
Challenges
- Compare the price with ATC at your point. Does the firm earn an economic profit?
- Why would a second firm, splitting the market, have a higher average total cost?
- Where on this graph is the deadweight loss of the firm's choice?
- At the price a regulator sets for the allocatively efficient quantity, compare the price with ATC. What does the firm need to keep producing there?