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 this firm is being regulated using a policy of marginal- cost pricing. To maintain the resulting level of output
A) the demand curve would have to shift down.
B) the government would have to accept the allocative inefficiency associated with this level of output.
C) the regulator would have to allow the firm to keep the monopoly profits at this level of output.
D) the government would have to subsidize the firm or it will eventually shut down.
E) the average total cost curve would have to shift up.

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 this firm is being regulated using a policy of marginal- cost pricing. To maintain the resulting level of output
A) the demand curve would have to shift down. 
B) the government would have to accept the allocative inefficiency associated with this level of output. 
C) the regulator would have to allow the firm to keep the monopoly profits at this level of output. 
D) the government would have to subsidize the firm or it will eventually shut down. 
E) the average total cost curve would have to shift up.

Quizplus · Accepted Answer

To maintain output at marginal-cost pricing, the firm may incur losses if price is below average total cost, requiring government subsidies to prevent shutdown.

The Diagram Below Shows the Market Demand Curve and the Cost