Why is the given firm considered a natural monopoly

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Regulating Natural Monopolies

The following graph represents a natural monopoly:

2047_Natural monopoly.jpg

a. Why is this firm considered a natural monopoly?

b. If the firm is unregulated, what price and output would maximize its profit? What would be its profit or loss? Explain your answer.

c. If a regulatory commission establishes a price with the goal of achieving allocative efficiency, what would be the price and output? What would be the firm's profit or loss? Explain your answer.

d. If a regulatory commission establishes a price with the goal of allowing the firm a "fair return," what would be the price and output? What would be the firm's profit or loss?

Reference no: EM131393567

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