Question

Suppose that in panel (a) of Figure 27-2, the vertical distances to points F and A are $\backslash (10$per unit and $\backslash )2$per unit, and Qm is $1,000$units. To measure the degree of monopoly power, economists often examine the differential between price and marginal cost as a percentage of the price. What would be the value of this measure of monopoly power for the natural monopolist depicted in panel (a) of the figure?

Short answer

The monopoly power for the natural monopolist is$80\%$

Step-by-step solution

Given Information

Natural Monopoly alludes to a market where there should exist just a single dealer. In certain business sectors, a solitary dealer is expected for proficient creation since that one firm can deliver the complete result at a lower cost than a few firms could.

Explanation

Assuming the long-run normal expense bend of the restraining infrastructure is constantly falling over the whole scope of market interest, then, at that point, it demonstrates that only one firm can serve the market.

Hence,

$Qm=1000P=10MC=2$

Monopoly power

$$\begin{gathered} \Rightarrow P-\frac{{\displaystyle MC}}{P}=10-\frac{{\displaystyle 2}}{10}\times 100 \\ =80\mathrm{\%} \end{gathered}$$