Which of the following is an efficient regulatory mechanism for a monopolistic industry?
A)a regulatory mechanism which makes MR coincide with market demand
B)rate of return regulation
C)distributing supranormal profits to consumers
D)average- cost pricing

Question

Quizplus · Accepted Answer

A regulatory mechanism which makes MR coincide with market demand is most efficient because it ensures that the monopolistic firm produces at the socially optimal output level where price equals marginal cost. This eliminates deadweight loss and maximizes overall welfare. Rate of return regulation, distributing supranormal profits to consumers, and average-cost pricing may not necessarily lead to this socially optimal output level.

Which of the Following Is an Efficient Regulatory Mechanism for a Monopolistic