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

-Refer to Figure 9-3. If regulators set a price according to marginal-cost pricing, what can we conclude about the firm?
A) It will suffer an economic loss.
B) It will earn positive economic profits.
C) It will make zero economic profits.
D) It will earn the same level of profits as it would absent regulation.

Question

The following diagram contains information on cost and revenue curves facing a regulated monopoly.
FIGURE 9-3
 
-Refer to Figure 9-3. If regulators set a price according to marginal-cost pricing, what can we conclude about the firm?
A) It will suffer an economic loss. 
B) It will earn positive economic profits. 
C) It will make zero economic profits. 
D) It will earn the same level of profits as it would absent regulation.

Quizplus · Accepted Answer

When regulators set a price according to marginal-cost pricing, the firm will often not be able to cover its average total costs, leading to an economic loss.

The Following Diagram Contains Information on Cost and Revenue Curves