Assignment 2 consists of one essay question (worth 30 marks) based on text material. Before attempting this assignment you are expected to have read Text chapters 1 to 10. You are encouraged to make use of additional sources. Sources used in your answer should be fully referenced in APA 6th style.

Answer the following question ensuring that you apply economic principles or theory related to the concepts of benefits, costs and market structure in which a firm operates to inform your analysis and support your decisions. Communicate your ideas with correct grammar, spelling and writing style and support your answer with diagrams and illustrative examples as necessary.

Question (30 marks)

Explain why governments may want to set the price charged by natural monopolies at the level where the demand curve cuts the average total cost curve. 

This assignment provides an opportunity for you to present a detailed analysis of the operation of firms in a particular market context through the application of your knowledge of theory supported by evidence drawn from sources of your choosing.

The question address the following learning outcomes:

Learning Outcome 3: be able to make decisions that incorporate the relevant benefits and cost analysis.

Learning Outcome 4: be able to explain and defend why it is important to understand the structure of the market in which a firm operates.