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Draw the average and marginal cost curves for a natural monopoly. Draw the demand and marginal revenue curves. a Show the efficient level of output, at which price equals marginal cost. Explain why if the firm charged a price equal to marginal cost, it would operate at a loss. Show diagrammatically the necessary subsidy. b Show the monopoly level of output, at which marginal revenue equals marginal cost. Explain why the monopoly level of output is smaller than the efficient level of output. c Sh
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