Consider the case of two natural monopolists for two different products, with identical long-run average costs and identical horizontal long run-marginal costs. The first monopolist faces a relatively inelastic demand, and the second monopolist faces a relatively elastic demand. Both demands, however, share the same vertical intercept. Explain the following, showing the justification to your explanation with properly labeled graphs (use a separate graph for each of a and b below): a. Which monopolist is the less likely target for government regulation? Why? b. If the government considers making both products a “public good” produced by the monopolists. Which product will place a heavier burden on the government’s budget?
Consider the case of two natural monopolists for two different products, with identical long-run average costs and identical horizontal long run-marginal costs. The first monopolist faces a relatively
a. Which monopolist is the less likely target for government regulation? Why?
b. If the government considers making both products a “public good” produced by the monopolists. Which product will place a heavier burden on the government’s budget?
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