-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. Suppose Visual is regulated according to a price cap rule, with the price cap set at $24 per household per month. The firm will maximize its profit if it serves ________ million households.
A) 2
B) 2.5
C) 3
D) 3.5

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. Suppose Visual is regulated according to a price cap rule, with the price cap set at $24 per household per month. The firm will maximize its profit if it serves ________ million households.
A) 2 
B) 2.5 
C) 3 
D) 3.5

Quizplus · Accepted Answer

The firm will maximize its profit by producing where marginal cost (MC) equals marginal revenue (MR). If the price cap is set at $24, the firm will produce where the demand curve (D) intersects the price cap line, which is at 3 million households.

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