The following graph gives cost and revenue data for a monopolist:

-Refer to the above graph to answer this question.If the monopolist is regulated and forced to charge a fair-return price,what will be its price and output?
A)$10 and 70.
B)$25 and 110.
C)$30 and 100.
D)$45 and 70.
E)$60 and 40.

Question

The following graph gives cost and revenue data for a monopolist:
 
-Refer to the above graph to answer this question.If the monopolist is regulated and forced to charge a fair-return price,what will be its price and output?
A)$10 and 70. 
B)$25 and 110. 
C)$30 and 100. 
D)$45 and 70. 
E)$60 and 40.

Quizplus · Accepted Answer

A fair-return price is the price at which a monopolist earns zero economic profit but covers all its costs. In other words, it is the price at which P=ATC. 
From the graph, we can see that the ATC curve intersects the demand curve at a quantity of 100 units. At this quantity, the ATC is around $30. Therefore, in order to earn a fair-return, the monopolist would have to charge a price of $30. Hence, the correct answer is C. At this price, the firm would produce 100 units of output.

The Following Graph Gives Cost and Revenue Data for a Monopolist