The following figure shows the costs and revenue curves of a firm in a monopoly market.

-Refer to the figure above.If the government decides to regulate this market at the socially optimal price level,it mandates the monopolist to sell its product at the price of ________.

Question

The following figure shows the costs and revenue curves of a firm in a monopoly market.
 
-Refer to the figure above.If the government decides to regulate this market at the socially optimal price level,it mandates the monopolist to sell its product at the price of ________.

Quizplus · Accepted Answer

At the socially optimal price level, the output should be where the marginal cost (MC) curve intersects the demand (D) curve. This is at point E, where the quantity is 6 units and the price is $3. At this price, the firm will earn zero economic profit, as the price is equal to the average total cost (ATC) curve at this level of output. The other options (A, B, and D) are all incorrect as they either result in the monopolist earning positive economic profit or output below the socially optimal level.

The Following Figure Shows the Costs and Revenue Curves of a Firm