-The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated using rate of return regulation, and the regulator knows the firm's costs curves, the company will serve ________ million households and set a price of ________ per household per month.
A) 2.5; $30
B) 3; $24
C) 4; $12
D) 2; $36

Question

-The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated using rate of return regulation, and the regulator knows the firm's costs curves, the company will serve ________ million households and set a price of ________ per household per month.
A) 2.5; $30 
B) 3; $24 
C) 4; $12 
D) 2; $36

Quizplus · Accepted Answer

Under rate of return regulation, the firm is allowed to set prices that cover its costs, including a normal profit. The firm will produce where MR = MC, which is at 3 million households, and set a price of $24 per household per month, where the demand curve intersects this quantity.

-The Figure Above Shows the Demand Curve (D) Faced by Visual