1. Explain the possible problems for consumers of each of the following ways of dealing with a natural monopoly:

a. Splitting the natural monopoly into several smaller competing firms.

b. Requiring that the company charge a price equal to where the marginal cost curve crosses the market demand curve, to that P = MC like a competitive firm.

c. Setting the price that the firm can charge so that the firm covers its average costs and also makes a normal (but only a normal!) rate of profit.

2. Who is more likely to be well represented at a meeting where government regulators come together to determine the price and quantity that an industry will charge: voices representing the industry or voices representing consumers? Why? What problem does this pose?

3. Why do most economists argue that the money raised by selling off state-owned firms is not an especially good argument for selling them? What is a respectable economic motive for the selling of state-owned firms?