Econocompany is under investigation by the U.S.

Department of Justice for violating antitrust laws.

The government decides that Econocompany has a natural monopoly and that, if it is to keep the government’s business, it must sell at a price equal to marginal cost. Econocompany says that it can’t do that and hires you to explain to the government why it can’t.

a. Explain why in reference to the following graph.

b. What price would it charge if it were unregulated?

c. What price would you advise that it should be allowed to charge?

Transcribed Image Text:

Price MR 0 Quantity ATC MC