This question is from a test-prep package provided by our introductory microeconomics professor.
My attempt: Normally, to discuss impact of government intervention on society I would go about and figure out its impact on Consumer Surplus (CS) as well as Producer Surplus (PS). Then I would take the net effect and if it is negative, then we have a Dead Weight Loss which represents loss of volume of transactions in society which is a negative thing.
However, with natural monopoly, because the MC (marginal cost) curve slopes downward I don't know how to specify which area represents the consumer surplus (which would typically between area above S-curve and below price).
Any help on this will be much appreciated.
My attempt: Normally, to discuss impact of government intervention on society I would go about and figure out its impact on Consumer Surplus (CS) as well as Producer Surplus (PS). Then I would take the net effect and if it is negative, then we have a Dead Weight Loss which represents loss of volume of transactions in society which is a negative thing.
However, with natural monopoly, because the MC (marginal cost) curve slopes downward I don't know how to specify which area represents the consumer surplus (which would typically between area above S-curve and below price).
Any help on this will be much appreciated.