1. A monopoly faces the following curves:
| Demand: | P = 1200 - 2Q |
| Marginal Revenue: | MR = 1200 - 4Q |
| Average Cost: | AC = 200 + (125000/Q) |
| Marginal Cost: | MC = 200 |
a. Is this a natural monopoly? Explain.
b. What price should the government choose if it uses average cost pricing with this firm? Explain.
c. How does average cost pricing affect the deadweight involved in this market? Explain.
d. What price should the government choose if it uses marginal cost pricing with this firm? Explain.
e. How does marginal cost pricing affect the firm's economic profit here? Explain.