Explore BrainMass
Share

Natural Monopolist: Profit Maximizing Price and Output

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

From figure 12-5 referring to a natural monopolist, indicate:
a. The best level of output, price, and profits per unit and in total for the monopolist
b. The best level of output and price with a lump sum tax that would eliminate all the monopolist's profits
c. The best level of output, price, and profits per unit and in total with a $3 per unit tax collected from the monopolist
d. The best level of output and profit per unit and in total if the government sets the price of the product or service at $10
e. Which is the best method of controlling monopoly power. Why?

© BrainMass Inc. brainmass.com October 25, 2018, 3:52 am ad1c9bdddf
https://brainmass.com/economics/price-levels/357100

Attachments

Solution Preview

See the attached file. Hope this will help. Thanks

From figure 12-5 referring to a natural monopolist, indicate:
a. The best level of output, price, and profits per unit and in total for the monopolist
For monopolist, the best level of output is set where MC=MR
The MC and MR curve intersect at Q=6, thus quantity will be set at 6 million units.
For price look at the corresponding value for P from the demand curve for Q=6. The corresponding value is $12
For profit per unit, we need the AC value for Q=6. The AC is Price =$8.00
Profit per unit = P-AC = $12.00-$8.00 = $4.00
Total profit = Profit ...

Solution Summary

This post shows how a natural monopolist would take pricing and output decisions to maximize its profits especially under different government tax policies. Complete formula and calculations are provided and answers are determined.

$2.19
See Also This Related BrainMass Solution

Price and quantity / output
(a) What price and quantity will prevail if the monopolist isn't regulated
(a1) price _______
(a2) quantity _______
(b) What price-output combination would exist with efficient pricing (MC = p )?
(b1) price _______
(b2) quanitity _______
(c) What price-output combination would exist with profit regulation (zero economic profits)?
(c1) price _______
(c2) quanitity _______

Illustrate your answers on the graph.

Suppose a natural monopolist has fixed costs of $24 and a constant marginal cost of $2. The demand
for the product is as follows:

Price (per unit) $10 $9 $8 $7 $6 $5 $4 $3 $2 $1

Quantity demanded
(units per day) 0 2 4 6 8 10 12 14 16 18

Under these conditions,
(a) What price and quantity will prevail if the monopolist isn't regulated
(a1) price _______
(a2) quantity _______
(b) What price-output combination would exist with efficient pricing (MC = p )?
(b1) price _______
(b2) quanitity _______
(c) What price-output combination would exist with profit regulation (zero economic profits)?
(c1) price _______
(c2) quanitity _______

Illustrate your answers on the graph.

View Full Posting Details