00:01
So here we're talking about what is a natural monopoly.
00:04
And the first one, we have four possible answers.
00:07
So the first one is average total cost is less than marginal cost.
00:13
B, at q star, the efficient level, dead weight loss is equal to zero.
00:24
C, if the monopoly chooses to produce the quantity, it would price is equal to average cost, it would earn a normal profit.
00:33
If price is equal to average total cost, it would imply normal profit.
00:44
And d, we would have efficient q star implies profits.
00:59
So let's try to remember what a natural monopoly is, right? a natural monopoly is actually an industry where average total cost is always decline.
01:14
That is the definition of a natural monopoly.
01:19
And so this one is immediately going to be wrong, right? average total cost is falling because marginal cost is always lower.
01:33
Right in for for natural monopolies we often think of marginal cost being approximately zero right for example for an electric company the cost of hooking up one more home to the grid is is very very small for netflix the cost of bringing on one more customer is very very small so um for a the average total cost is declining it must be because the extra unit is always very cheap and that extra is dragging people down, is dragging total costs down.
02:10
So at q star, q star implies that marginal benefit is equal to marginal cost, right? so if i sketch this between price and quantity, we have a marginal benefit curve.
02:25
We have a marginal cost curve that is, for example, very low, right? marginal cost...