Regulating Monopoly

Two monopolies, two remedies

The regulated price dilemma

Antitrust in practice

The last word on moats

A city's water utility has average cost falling over the entire market demand. A council member proposes splitting it into five competing companies. What is the economist's likely objection?

A regulated natural monopoly faces demand P = 60 - Q/2. Its marginal cost is 8 dollars per unit, but its average total cost at the efficient quantity is 16 dollars. What happens if the regulator insists on marginal-cost pricing of 8 dollars?

A utility charges 8 dollars per unit, its marginal cost, and expects to sell 104 units. Its total cost at that quantity averages 16 dollars per unit. Compute the total loss the fixed fees must cover, in dollars, and write the number.

A utility charges a fixed monthly access fee plus a per-unit price equal to marginal cost. What does this two-part tariff achieve?

A regulator prices a natural monopoly at its average total cost instead of marginal cost. What is the outcome?

A regulated utility must price at marginal cost of 8 dollars while its average total cost is 16 dollars per unit. Compute the loss per unit that a subsidy or fixed fee must cover, and write the number.