The following graph shows the demand (D) for gas services in a particular town.
ID: 1220432 • Letter: T
Question
The following graph shows the demand (D) for gas services in a particular town. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local gas company, a natural monopolist. Based solely on the graph, which of the following principal types of barriers to entry is the natural monopoly (the gas company) likely to enjoy? Ownership of a scaree resource A government-created monopoly Costs of production such that a single producer is more efficient than a large number of producers The natural monopolist will maximize economic profit by choosing a price of and a quantity of Suppose the government forces the gas company to set its price equal to marginal cost. Under this regulation, in the long run, the gas company will supply With this price regulation and without a government subsidy, the gas company will in the long run.Explanation / Answer
A Government Created Monopoly, Meeting Demand on its own by producing at a cost less than Average Total Cost.
At a Price of P3 and a quantity of Q1 at a point where MC= MR
Gas company will supply Less. and will exit in the long Run in absence of Subsidy.
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