Figure 10-16
Figure 10-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 10-16.Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit-maximizing owners.If regulators require that the firm produces the economically efficient output level,what is this level and what price will be charged?

Question

Figure 10-16
  Figure 10-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 10-16.Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit-maximizing owners.If regulators require that the firm produces the economically efficient output level,what is this level and what price will be charged?

Quizplus · Accepted Answer

The economically efficient output level is where the price equals marginal cost (P=MC). In the given options, Q₄ units at price P₆ is likely where this condition is met.

Figure 10-16 Figure 10-16 Shows the Market Demand and Cost