The graph below illustrates the following. When the market is served by six competitive firms, each...

 

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The graph below illustrates the following. When the market is served by six competitive firms, each firm will be producing 20 units. However, a natural monopoly that can emerge on this market can produce 120 units. In addition, a socially optimal level of output for this natural monopoly is 200 units. Price & cost (R/unit) 33 80 50 120 MR 200 SRMC -LRAC LRMC SRAC Quantity (units) Where D-Demand: MR-Marginal revenue; SRMC-short-ram marginal cont: SRAC-short-ran average cost; LRMC- long-run marginal cont; LRAC-long-n average cont 2.1.1 Calculate the natural monopoly's profit or loss in the absence of regulations. 2.1.2 Calculate the required subsidy or lumpsum access fee to achieve the benefits of the most efficient organisation of production assuming that per unit price is equated to the natural monopoly's long run marginal cost. 1.2 Several practical problems arise in public utility regulation of such utilities like natural gas and electricity although on paper the concept of utility price and profit regulation looks simple. Discuss any four problems encountered in the process of regulating the provision of such utilities. (8) The graph below illustrates the following. When the market is served by six competitive firms, each firm will be producing 20 units. However, a natural monopoly that can emerge on this market can produce 120 units. In addition, a socially optimal level of output for this natural monopoly is 200 units. Price & cost (R/unit) 33 80 50 120 MR 200 SRMC -LRAC LRMC SRAC Quantity (units) Where D-Demand: MR-Marginal revenue; SRMC-short-ram marginal cont: SRAC-short-ran average cost; LRMC- long-run marginal cont; LRAC-long-n average cont 2.1.1 Calculate the natural monopoly's profit or loss in the absence of regulations. 2.1.2 Calculate the required subsidy or lumpsum access fee to achieve the benefits of the most efficient organisation of production assuming that per unit price is equated to the natural monopoly's long run marginal cost. 1.2 Several practical problems arise in public utility regulation of such utilities like natural gas and electricity although on paper the concept of utility price and profit regulation looks simple. Discuss any four problems encountered in the process of regulating the provision of such utilities. (8)

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Natural Monopolys Profit or Loss To calculate the natural monopolys profit or loss in the absence of ... View the full answer