ECO105Y1 Chapter Notes - Chapter micro 10: Progressive Tax, Making Money, Sidney Crosby
Document Summary
Higher costs, but less subscribers: average total goes up. Economies of scale: as a (cid:271)usi(cid:374)ess"s s(cid:272)ale of p(cid:396)odu(cid:272)tio(cid:374) i(cid:374)(cid:272)(cid:396)eases, a(cid:448)e(cid:396)age total (cid:272)ost decreases. Natural monopoly: economies of scale allow only a single seller to achieve lowest average total cost. Market failure: when markets produce outcomes that are inefficient/inequitable. So how do you gain the low cost efficiencies of economies of scale, but avoid the inefficiencies of its restricted output and higher price: public ownership: Crown corporations are created by the government: bc hydro, canada post, via rail canada, regulation: Not a perfect solution because no competitive pressure. Allow a single private business, but government regulates it. Price is regulated: banks, air transportation, telephone, cable systems. Rate of return regulation: the regulated monopoly is allowed to charge a price that earns it normal profits (average total cost) Not perfect solution because managers of regulated businesses exaggerate their reported costs, since the(cid:455)"(cid:396)e guaranteed a normal rate of return on all costs.
