Answer to Question #242431 in Macroeconomics for mnb

Question

Eskom, as a natural monopolist state-owned enterprise (SOE0, produces too little output at too high a price. Using a figure, illustrate and explain the social costs of a natural monopoly (e.g. electricity generation)

Answer 1

EXPLANATION

Region PKBL is the inefficient region. In this region the profits are high. Prices are also hyped up. But the output would be lower. 

In the region of CXAP₁ of losses. Output are higher and prices are low. 

We won't see a supply curve for a monopoly because we know that monopoly is the price maker. 

A dead weight loss is created because some of the consumers are not served who are ready to pay amount equal to marginal cost.