The following figure shows the marginal cost [MC],marginal revenue [FH] and demand [FG] curves for a monopolist who faces constant costs.
Figure 15-1
-Refer to Figure 15-1.If the regulator sets a maximum price of P₂,the monopolist's demand curve is _____.

Question

The following figure shows the marginal cost [MC],marginal revenue [FH] and demand [FG] curves for a monopolist who faces constant costs.
Figure 15-1

-Refer to Figure 15-1.If the regulator sets a maximum price of P₂,the monopolist's demand curve is _____.

Quizplus · Accepted Answer

When the regulator sets a maximum price of P₂, the monopolist can only sell at this price. Thus, the demand curve becomes P₂EG, which is the horizontal line at P₂ intersecting the original demand curve FG.

The Following Figure Shows the Marginal Cost [MC],marginal Revenue [FH]