(Answered) Suppose there is a natural monoply ie production exhibited

Management Studies

Suppose there is a "natural monoply," i.e. production exhibited increasing returns to scale and marginal cost is constant but essentially zero.

i) Draw the ATC and MC curves for such a firm.

ii) Explain why no firm would enter this market if they expected it to be a competitive market.

iii) Why is it efficiency enhancing for the government to allow a single firm to be the monopolist in this market -- even if there is a DWL associated with the monopolist.

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