The diagram below shows the market demand curve and the cost curves for a single firm. FIGURE 12-6
-Refer to Figure 12-6. Suppose the firm is being regulated using a policy of average-cost pricing.The resulting price and output would be
A) P1 and Q₂.
B) P3 and Q₂.
C) P1 and Q₁.
D) P2 and Q₂.
E) P3 and Q₁.

Question

The diagram below shows the market demand curve and the cost curves for a single firm.  FIGURE 12-6
-Refer to Figure 12-6. Suppose the firm is being regulated using a policy of average-cost pricing.The resulting price and output would be
A) P1 and Q₂. 
B) P3 and Q₂. 
C) P1 and Q₁. 
D) P2 and Q₂. 
E) P3 and Q₁.

Quizplus · Accepted Answer

Average-cost pricing sets the price equal to the firm's average total cost, which intersects with the demand curve at point E. The corresponding output level is Q₁. Therefore, the resulting price and output would be P3 and Q₁.

The Diagram Below Shows the Market Demand Curve and the Cost