Chapter 14 and 15 B

Question 0

What options are there to regulate price with regards to natural monopolies?

Answer 0

option 1- make the monopoly price it’s goods like it was in a perfectly competitive market.
why this is bad? may be unfair, do we know what the marginal cost is? the cost to subsidize then may be too high.
Option 2- cover cost with AC pricing. ends up breaking even
Option 3- allow price discrimination
- allows prices to change based on customer situations and usage.

Question 1

Explain why prices should be regulated for natural monopolies.

Answer 1

1. offers consumer protection
   - monopoly power may exploit the price
   - especially if demand is inelastic
2. reduces DWL .

Question 2

Why are barriers

required on natural monopolies?

Answer 2

bc some businesses may come in and target the profitable sectors (called skimming) of the market,
making prices for all increase. look at the example in the notes

Question 3

List and explain the different types of non uniform pricing (3)

Answer 3

1. Uniform
E=PQ
2. Two-Part pricing
E= L + EQ
3. Multipart pricing
E= L+P1Q1+ P2Q2+....PNQN

as seen in notes graph