Question

JustMeInc. is the only provider of high speed internet in Tinytown. The firm charges their customers on an annual basis. Its cost and demand information are given below. Quantity (Millions of subscribers) Price ($ per subscriber) Total Cost (million $) 1 300 200 2 260 380 3 233.33 540 4 210 680 5 180 800 6 150 900 7 100 980 8 60 1040 If the government decides to regulate this natural monopoly by forcing them to sell the quantity and price where the market demand curve crosses average cost, then the market price would be

Answer 1

The regulated market price would be $150 per subscriber, which is found by identifying the quantity where the given market price intersects the calculated average cost for JustMeInc., the monopoly provider of high-speed internet in Tinytown.

Step-by-step explanation:

To find the price JustMeInc. would charge if the government regulates the monopoly to produce where market demand intersects average cost, we examine the given cost and demand information for the quantity (in millions of subscribers) that equalizes price and average cost (AC). The average cost is calculated by dividing the total cost by the quantity of subscribers. Once we find the quantity where price equals average cost, we can determine the regulated market price.

We calculate the average cost for each quantity level:

• For 1 million subscribers, AC = $200m / 1m = $200 per subscriber.
• For 2 million subscribers, AC = $380m / 2m = $190 per subscriber.
• For 3 million subscribers, AC = $540m / 3m = $180 per subscriber.
• For 4 million subscribers, AC = $680m / 4m = $170 per subscriber.
• For 5 million subscribers, AC = $800m / 5m = $160 per subscriber.
• For 6 million subscribers, AC = $900m / 6m = $150 per subscriber.
• For 7 million subscribers, AC = $980m / 7m = $140 per subscriber.
• For 8 million subscribers, AC = $1040m / 8m = $130 per subscriber.

By looking at the provided price and average cost, we notice that the market price would equal the average cost at 6 million subscribers where both the price and average cost are $150 per subscriber. Hence, if the government regulates the monopoly to produce where market demand intersects with average cost, the regulated market price would be $150 per subscriber.

Answer 2

Check the explanation

Step-by-step explanation:

Now if demand curve is equal to average cost curve then from the table and graph we can see that it happens when quantity is 6 million and price is 150.

In an unregulated market, company will sell to maximize profit which as seen from the table happens when quantity is 4 million and price is 210.

Allocative efficiency means price(demand) = MC which from the table can be seen at price 60 and quantity 8 million output. but at this price we see that company suffers 560 million loss so it should get 560 mullion as subsidy to even work at zero profits.

Kindly check the attached image below to see the step by step explanation to the question above.