Just Me Inc. is the only provider of high-speed internet in Tinytown. The firm charges its customers on an annual basis. It's cost and demand information are given below.
Quantity
(Millions of subscribers)
Price
($ per subscriber)
Total Cost
(million $)
1
300
200
2
260
380
3
233.33
540
4
210
680
5
180
800
6
150
900
7
100
980
8
60
1040
a. What will the market price be if the government decides to regulate this natural monopoly by forcing them to sell the quantity and price where the market demand curve crosses the average cost?
b. How many units will be sold at what price if the monopoly is not regulated?
c. If the internet was regulated to provide the most allocatively efficient quantity of output, what output would it supply and what price would it charge? What subsidy would be necessary to ensure this efficient provision of internet services? (Remember: allocative efficiency requires that price equals marginal cost).
Just Me Inc. is the only provider of high-speed internet in Tinytown. The firm charges its customers on an annual basis. It's cost and demand information are given below.
|
Quantity (Millions of subscribers) |
Price ($ per subscriber) |
Total Cost (million $) |
|
1 |
300 |
200 |
|
2 |
260 |
380 |
|
3 |
233.33 |
540 |
|
4 |
210 |
680 |
|
5 |
180 |
800 |
|
6 |
150 |
900 |
|
7 |
100 |
980 |
|
8 |
60 |
1040 |
a. What will the market price be if the government decides to regulate this natural monopoly by forcing them to sell the quantity and price where the market demand curve crosses the average cost?
b. How many units will be sold at what price if the monopoly is not regulated?
c. If the internet was regulated to provide the most allocatively efficient quantity of output, what output would it supply and what price would it charge? What subsidy would be necessary to ensure this efficient provision of internet services? (Remember: allocative efficiency requires that price equals marginal cost).
Related textbook solutions
Related questions
The following table shows the demand curve and cost information for a firm that is monopoly
| Price | Quantity | TC |
| $10 | 0 | $500 |
| $9 | 200 | $1,000 |
| $8 | 400 | $1,600 |
| $7 | 600 | $2,500 |
| $6 | 800 | $4,000 |
What quantity should they produce to maximize their profits?
200 units
400 units
800 units
600 units
Mary competes in a monopolistically competitive market. Suddenly, 5 new firms enter the market causing her perceived demand curve to shift. The following tables show her original and new demand curves and her cost information.
Assume that Mary can only choose from the quantities of output given in the table. By how will the quantity that she produces change after the new firms enter the market?
Original Demand Curve
| Price | quantity | TC |
| 30 | 0 | $130 |
| 25 | 10 | $140 |
| 20 | 20 | $260 |
| 15 | 30 | $450 |
| 10 | 40 | $660 |
New Demand Curve
| 25 | 0 | $130 |
| 20 | 10 | $140 |
| 15 | 20 | $260 |
| 10 | 30 | $450 |
| 5 | 40 | $660 |
Decrease by 5
Decrease by 10
Increase by 10
Increase by 5
Monopolistic competitor has the following information about cost and demand
| Quantity | Price($) | Total Revenue ($) | Marginal Revenue ($) | Total Cost ($) | Marginal Cost ($) | Average Cost ($) |
| 0 | 25 | 0 | 25 | 30 | ---- | ---- |
| 2 | 24 | 48 | 23 | 35 | 2.5 | 17.5 |
| 4 | 23 | 92 | 21 | 45 | 5 | 11.25 |
| 6 | 22 | 132 | 19 | 60 | 7.5 | 10 |
| 8 | 21 | 168 | 17 | 77 | 8.5 | 9.63 |
| 10 | 20 | 200 | 15 | 100 | 11.5 | 10 |
| 12 | 19 | 228 | 13 | 126 | 13 | 10.5 |
| 14 | 18 | 252 | 11 | 165 | 19.5 | 11.79 |
| 16 | 17 | 272 | 9 | 210 | 22.5 | 13.13 |
| 18 | 16 | 288 | 7 | 260 | 25 | 14.44 |
| 20 | 15 | 300 | 5 | 320 | 30 | 16 |
If this industry was perfectly competitive, what price would the good sell for?
$19
$23
$21
$15
Monopolistic competitor has the following information about cost and demand
| Quantity | Price($) | Total Revenue ($) | Marginal Revenue ($) | Total Cost ($) | Marginal Cost ($) | Average Cost ($) |
| 0 | 25 | 0 | 25 | 30 | ---- | ---- |
| 2 | 24 | 48 | 23 | 35 | 2.5 | 17.5 |
| 4 | 23 | 92 | 21 | 45 | 5 | 11.25 |
| 6 | 22 | 132 | 19 | 60 | 7.5 | 10 |
| 8 | 21 | 168 | 17 | 77 | 8.5 | 9.63 |
| 10 | 20 | 200 | 15 | 100 | 11.5 | 10 |
| 12 | 19 | 228 | 13 | 126 | 13 | 10.5 |
| 14 | 18 | 252 | 11 | 165 | 19.5 | 11.79 |
| 16 | 17 | 272 | 9 | 210 | 22.5 | 13.13 |
| 18 | 16 | 288 | 7 | 260 | 25 | 14.44 |
| 20 | 15 | 300 | 5 | 320 | 30 | 16 |
What will the firm
