Sunday, November 29, 2009

Two-Minute Drill--Natural Monopoly

Natural Monoply Worksheet -

A natural monopoly is characterized by a broad sweeping ATC curve that reflexs high fixed costs and relatively small variable costs. In this diagram, the monopoly would charge a higher price and produce less if it were unregulated. A socially optimal price would require a subsidy but would satisfy the greatest amounts of wants especially during peak times. Regulating the monopoly at its breakeven point, might lead to wasteful spending. Clearly, regulating the monopoly at the P = MC prince is socially optimal.

About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He is an author, and also publishes the Mikeroeconomics and iMacroeconomics VB blogs.


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