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Natural Monopolist: Profit Maximizing Price and Output

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?

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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.

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