The average cost for a typical electric-power-production firm is AC = 100 - 10Q + Q2 where Q is measured in billion kilowatt hours per day. At the current regulated price, consumers demand 4 billion kilowatt hours per day. Is this market a natural monopoly? If demand increases to 10 billion kilowatt hours, is this market a natural monopoly? Explain
What will be an ideal response?
The firm enjoys economies of scale up to 5 billion kilowatt hours (kwhr) per day (Minimum AC). So, at 4 billion kwhr per day, the firm is a natural monopoly. At 10 billion kwhr per day, this firm is no longer a natural monopoly.
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Refer to Figure 15-6. The profit-maximizing output and price for the monopolist are
A) output = 62; price = $24. B) output = 104; price = $20.80. C) output = 83; price = $22. D) output = 62; price = $18.
A discount bond involves
A) interest payments from the borrower to the lender periodically during the life of the loan. B) payment by the borrower to the lender of the face value of the loan at maturity. C) no payment of principal by the borrower to the lender. D) payment of interest by the borrower to the lender every six months during the life of the loan.