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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

No.

Step by step solution

01

Step1. Concept

A natural monopoly is one where a single firm is allowed to cater to the needs of entire large number of buyers. It is so because cost of production incurred by a natural monopolist is less than incurred by large number of producers.

02

Step2. Explanation

The average cost curve of a natural monopolist is always declining due to Economies of Scale being experienced by the natural monopolist firm.

But, in the graph plotted, the AC increases after 9 units of quantity.

Hence, it can't be said as a natural monopoly.

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Most popular questions from this chapter

Use the following information to answer the next three questions. In the years before wireless phones, when telephone technology required having a wire running to every home, it seemed plausible that telephone service had diminishing average costs and might require regulation like a natural monopoly. For most of the twentieth century, the national U.S. phone company was AT&T, and the company functioned as a regulated monopoly. Think about the deregulation of the U.S. telecommunications industry that has occurred over the last few decades. (This is not a research assignment, but a thought assignment based on what you have learned in this chapter.)

What real world changes made the deregulation possible?

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

Why can it be difficult to decide what a “market” is for purposes of measuring competition?

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Some years ago, two intercity bus companies, Greyhound Lines, Inc. and Trailways Transportation System, wanted to merge. One possible definition of the market in this case was “the market for intercity bus service.” Another possible definition was “the market for intercity transportation, including personal cars, car rentals, passenger trains, and commuter air flights.” Which definition do you think the bus companies preferred, and why?
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