Exhibit 13-3 A monopolist
-In Exhibit 13-3, if this industry is regulated and the regulatory commission sets price equal to average total cost, then:
A) this firm would earn excess profit.
B) total revenue would equal marginal revenue.
C) the firm would suffer losses.
D) revenue would just be sufficient to cover costs.
E) revenue would just be sufficient to cover marginal cost.

Question

Exhibit 13-3 A monopolist 
-In Exhibit 13-3, if this industry is regulated and the regulatory commission sets price equal to average total cost, then:
A) this firm would earn excess profit. 
B) total revenue would equal marginal revenue. 
C) the firm would suffer losses. 
D) revenue would just be sufficient to cover costs. 
E) revenue would just be sufficient to cover marginal cost.

Quizplus · Accepted Answer

Setting price equal to average total cost means that the firm is earning zero economic profit. Therefore, revenue would just be sufficient to cover costs, but not enough to earn any excess profit or cover only marginal cost.

Exhibit 13-3 a Monopolist