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 the firm is being regulated using a policy of average -cost pricing.The resulting price and output would be
A)P1 and Q2.
B)P1 and Q1.
C)P2 and Q2.
D)P3 and Q1.
E)P3 and Q2.

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 the firm is being regulated using a policy of average -cost pricing.The resulting price and output would be
A)P1 and Q2. 
B)P1 and Q1. 
C)P2 and Q2. 
D)P3 and Q1. 
E)P3 and Q2.

Quizplus · Accepted Answer

With an average-cost pricing policy, the firm would be forced to set its price equal to its average total cost (ATC), which is represented by the line ATC in the diagram. The point where ATC intersects with the demand curve is P3, and the corresponding output is Q1. Therefore, the resulting price and output would be P3 and Q1.

The Diagram Below Shows the Market Demand Curve and the Cost