2. The natural monopolist, whose cost and demand curves are shown to the right, is initially charging price P0 and selling Q0 units of output. Does the firm have an incentive to alter the price it charges for its output?
  1. Yes, the firm should charge a higher price because its profits are negative.
  2. No, the price should remain at P0 as this is the profit maximizing price.
  3. Yes, the firm should charge a higher price because even though it is earning positive profits, it is not maximizing profit.
  4. Yes, the firm should charge a lower price because even though it is earning positive profits, it is not maximizing profit.
  5. Even thought the firm is not maximizing profits, it should not alter the price it charges because natural monopolists never can maximize profits.

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