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 average-cost pricing. In this case, economic profits to the firm are represented by the area
A) P2P3ad
B) P1P2bc
C) 0P3aQ₁
D) P2P3ab
E) there are no economic profits.

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 average-cost pricing. In this case, economic profits to the firm are represented by the area
A) P2P3ad 
B) P1P2bc 
C) 0P3aQ₁ 
D) P2P3ab 
E) there are no economic profits.

Quizplus · Accepted Answer

Under average-cost pricing, the firm sets the price equal to the average cost, which means it covers all its costs, including normal profit, but does not earn any economic profit.

The Diagram Below Shows the Market Demand Curve and the Cost