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Chapter 11: Q. 7 (page 272)

From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly? Justify.

Short Answer

Expert verified

The transit system is a natural monopoly.

Step by step solution

01

Definition

A monopoly occurs when there is only one vendor and no competition in the market. There is complete control over the supply of a commodity or service.

02

Explanation

A monopoly occurs when there is only one vendor and no competition in the market. Yes, the transit system is a natural monopoly because average costs fall over the range that meets market demand.

For example, the economics of scale is the intersection of the average cost curve and the demand curve.

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Most popular questions from this chapter

Why are urban areas willing to subsidize urban

transit systems? Does the argument for subsidies make sense to you?

What is predatory pricing? How might it reduce competition, and why might it be difficult to tell when it should be illegal?

Deregulation, like all changes in government

policy, always has pluses and minuses. What do you think some of the minuses might be for airline

deregulation?

What would be evidence of serious competition between firms in an industry? Can you identify two highly competitive industries?

If the transit system were regulated to operate with

no subsidy (i.e., at zero economic profit), what

the approximate output would it supply and what

approximate price would it charge?
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