ECON 1201 1st EditionLecture 12Outline of Previous Lecture – Monopoly I. AssumptionsII. Profit Maximization and Losses in the Short RunIII. Special Case (price discrimination)Outline of Current Lecture – Natural monopolyI. Profit MaximizationII. Allocative efficiency regulationIII. Break Even RegulationIV. SummaryCurrent LectureNatural Monopoly: a firm that experiences economies of scale over the relevant range of demand * When depicted in a graph, a natural monopoly just shows the left half it (picture a vertical line dividing the ATC and AVC curves in half* Only need to draw ATC curve Example of a regulated monopoly: subway systems, electricity company, cable companies I. Profit MaximizationProfit maximization occurs at point Q*- not allocatively efficient because ATC is not equal to DII. Allocatively Efficient RegulationThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- firms loses money because cost is greater than the price SO, need government subsidies to stay in business III. Break Even RegulationQfr is the monopoly’s break even point because the quantity is where the demand and ATC intersect.- In this situation, the government does not have to subsidize the firm but they are not allocatively efficient - she also explained where points are efficient or inefficient on a combination of all 3 graphs. Forall 3, the inefficiency is located in the triangle area from the x axis, up from the quantity to demand (or price) and then diagonally down the demand curve to the intersection of marginal cost and demand or mr. For QAE or allocative inefficiency, there was no inefficiency because the intersection is where demand and marginal cost
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