-Refer to the diagram above and assume the case of cost-plus regulation.At equilibrium,with no subsidy,the firm's profit is
A) (P3 - P2).
B) (P3 - P2)Q3.
C) (P2 - (ATC at Q2))Q2.
D) (P1 - P3)Q2.
E) (P1 - P2)Q3.

Question

-Refer to the diagram above and assume the case of cost-plus regulation.At equilibrium,with no subsidy,the firm's profit is
A) (P3 - P2). 
B) (P3 - P2)Q3. 
C) (P2 - (ATC at Q2))Q2. 
D) (P1 - P3)Q2. 
E) (P1 - P2)Q3.

Quizplus · Accepted Answer

In cost-plus regulation, the firm is allowed to cover its costs and earn a normal profit. At equilibrium, the firm's profit is the difference between the price (P2) and the average total cost (ATC) at the quantity produced (Q2), multiplied by the quantity (Q2).

-Refer to the Diagram Above and Assume the Case of Cost-Plus