The diagram below shows the market demand curve and the cost curves for a single firm.
FIGURE 12- 6
-Refer to Figure 12- 6.Suppose this firm is being regulated using a policy of marginal- cost pricing.In this case,

Question

The diagram below shows the market demand curve and the cost curves for a single firm.
  FIGURE 12- 6
-Refer to Figure 12- 6.Suppose this firm is being regulated using a policy of marginal- cost pricing.In this case,

Quizplus · Accepted Answer

Marginal-cost pricing sets the price at the level of marginal cost, which in this case is where the marginal cost curve intersects with the demand curve. At this price, allocative efficiency is achieved because the amount produced is where the marginal benefit to society equals the marginal cost to the firm. This also ensures that there is no deadweight loss in the market. Additionally, the firm is not earning any economic profit, but it is covering its variable and fixed costs, so it is not suffering losses.

The Diagram Below Shows the Market Demand Curve and the Cost