The following diagram contains information on cost and revenue curves facing a regulated monopoly.
FIGURE 9-3

-Refer to Figure 9-3. If the government is able to regulate the monopolist using average-cost pricing, what price and output combinations are expected to result?

Question

The following diagram contains information on cost and revenue curves facing a regulated monopoly.
FIGURE 9-3
 
-Refer to Figure 9-3. If the government is able to regulate the monopolist using average-cost pricing, what price and output combinations are expected to result?

Quizplus · Accepted Answer

Average-cost pricing regulation would set the price where the average cost curve intersects the demand curve, which typically allows the firm to cover its costs, including a normal profit. This point is represented by P4 and Q3, where the average cost curve meets the demand curve, ensuring the firm's costs are covered while also increasing output compared to the unregulated monopoly outcome.

The Following Diagram Contains Information on Cost and Revenue Curves