Download presentation
Presentation is loading. Please wait.
1
Regulated Monopoly
2
What is Regulation? Although ownership of the regulated firm remains in private hands, pricing and production decisions are monitored by government
3
What quantity should a Monopoly produce to maximize profit?
MR = MC
4
Socially Optimum Price Fair-Return Price Dilemma of Regulation
REGULATED MONOPOLY Natural Monopolies Rate Regulation Socially Optimum Price P = MC Fair-Return Price P = ATC Dilemma of Regulation Graphically…
5
REGULATED MONOPOLY Monopoly Price P MR = MC Price and Costs ATC MC D
Q Qm
6
REGULATED MONOPOLY P Socially-Optimum Price Price and Costs P = MC ATC
MR Q Qr
7
What is a fair market price to impose on a Monopoly?
The price that will enable it to make a Normal Profit ©1999 South-Western College Publishing
8
Where does a Monopoly make a Normal Profit?
P = ATC ©1999 South-Western College Publishing
9
REGULATED MONOPOLY P Fair-Return Price Normal Profit Only
Price and Costs ATC Pf MC D MR Q Qf
10
Can less than a Normal Profit be mandated?
Yes! But only if the monopoly is subsidized ©1999 South-Western College Publishing
11
REGULATED MONOPOLY Dilemma of Regulation Which Price? P MR = MC
Fair-Return Price Pm Socially-Optimum Price Price and Costs ATC Pf MC Pr D MR Q Qm Qf Qr
Similar presentations
