Urban transit systems, especially those with rail systems, typically experience significant economies of scale in operation. Consider the transit system data in Table 11.4. Note that the quantity is in millions of riders. Draw the demand, marginal revenue, marginal cost, and average cost curves. Do they have the normal shapes?
From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly? Justify. Use the following information to answer the next three questions. In the years before wireless phones, when telephone technology required having a wire running to every home, it seemed plausible that telephone service had diminishing average costs and might require regulation like a natural monopoly. For most of the twentieth century, the national U.S. phone company was AT&T, and the company functioned as a regulated monopoly. Think about the deregulation of the U.S. telecommunications industry that has occurred over the last few decades. (This is not a research assignment, but a thought assignment based on what you have learned in this chapter.)
So we want to know why firms use anti competitive practices. So some anti competitive practices may include minimum resale price agreements, exclusive dealings or tying sales. And the answer to this is simply to make profits. What every firm seeks to do is to maximize their profits now the use anti competitive practices because it allows them to reduce competition in some regard and by doing so, kind of captures in, maintains a section off the market and may behave us a monopoly in some ways. But the big thing here is that they want to make profits, and so they're going to use, you know, any loopholes or anything that they're allowed to do in order it to reach that goal off profit maximizing.