Figure 15-16 Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-16. Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit-maximizing owners. If regulators require that the firm produces the economically efficient output level, what is this level and what price will be charged?

Question

Figure 15-16  Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-16. Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit-maximizing owners. If regulators require that the firm produces the economically efficient output level, what is this level and what price will be charged?

Quizplus · Accepted Answer

The economically efficient output level is Q₄ units, and the price that will be charged is P₆. At this output level, the marginal cost of production is equal to the marginal benefit to consumers.

Figure 15-16 Figure 15-16 Shows the Market Demand and Cost