riders.

Demand: Quantity

Price

1

2

10 9

Marginal Revenue 10 8

Costs:

Marginal Cost

Average Cost

9

9

TABLE 11.4

6

3

8

6

5

4

7

4

3

5 6

6 5

7

4

8

3

9

2

10

1

2 0

–2

–4

–6

–8

2 3

4

5

7

10

7.5 6.7 5.8 5 4.7 4.6 4.6 4.9 5.4

Draw the demand, marginal revenue, marginal cost, and average cost curves. Do they have the normal
shapes?

7. 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
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