A firm is a natural monopoly. Its marginal cost curve is flat, and its average cost curve is downward sloping (because it has a fixed cost). The firm can perfectly price discriminate. a. In a graph, show how much the monopoly produces, Q*. b. Can it profitably produce where its price equals its marginal cost? c. Show that a monopoly might shut down if it can only set a single price but will operate if it can perfectly price discriminate.
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