1. Can a regulated firm whose price is set equal to average cost exploit its monopoly power by tying the sale of its regulated product to an unrelated and unregulated product U? How? Why might this be difficult?

2. Why would you expect a firm to enter unregulated markets that use similar inputs to that of its regulated product? How might cost misallocation result in inefficient production by the regulated firm? Why would you expect regulators not to permit regulated firms to secure debt financing for their unregulated operations with its regulated assets?

32 Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 and Interconnection Between Local Exchange Carriers and Commercial Mobile Radio Service Provider, 11 F.C.C. Record 15,499 (1996).