Exhibit 13-3 A monopolist
-In Exhibit 13-3, if this industry is regulated and the regulatory commission wants revenue to just cover cost, the proper price and output combination to be set is:
A) price = $8; output = 25.
B) price = $8; output = 30.
C) price = $5; output = 40.
D) price = $4; output = 25.
E) price = $10; output = 25.

Question

Exhibit 13-3 A monopolist 
-In Exhibit 13-3, if this industry is regulated and the regulatory commission wants revenue to just cover cost, the proper price and output combination to be set is:
A) price = $8; output = 25. 
B) price = $8; output = 30. 
C) price = $5; output = 40. 
D) price = $4; output = 25. 
E) price = $10; output = 25.

Quizplus · Accepted Answer

In order to set a price and output combination that just covers cost, the regulatory commission would want to set the price equal to the marginal cost. From the graph in Exhibit 13-3, we can see that the monopolist's marginal cost is $5 and that the corresponding output level is 40. Therefore, the proper price and output combination to be set is price = $5 and output = 40.

Exhibit 13-3 a Monopolist