The following figure shows the average cost [AC],marginal cost [MC],and demand [D] curves for a natural monopoly;Qi denotes quantity and Pi denotes price.
Figure 15-3
-Refer to Figure 15-3.Which of the following price and output combinations would an unregulated monopolist choose?
A)P2,Q2
B)P1,Q1
C)P3,Q2
D)P4,Q3

Question

The following figure shows the average cost [AC],marginal cost [MC],and demand [D] curves for a natural monopoly;Qi denotes quantity and Pi denotes price.
Figure 15-3 
-Refer to Figure 15-3.Which of the following price and output combinations would an unregulated monopolist choose?
A)P2,Q2 
B)P1,Q1 
C)P3,Q2 
D)P4,Q3

Quizplus · Accepted Answer

A natural monopolist maximizes profits where marginal cost equals marginal revenue (MR). In this figure, we see that MR is below the demand curve (D) at all points. The unregulated monopolist will choose to produce where MR=MC, which is at point Q3. At this point, they will charge a price of P4. Therefore, the correct answer is D.

The Following Figure Shows the Average Cost [AC],marginal Cost [MC],and