Suppose a monopolist has costs such that when output is 500 units per hour, average costs are $3. If the monopolist is regulated by a policy of average-cost pricing, the monopolist will charge a price of

Question

Quizplus · Accepted Answer

Average-cost pricing is a regulatory policy in which a firm is required to charge a price equal to its average costs of production. Therefore, if the monopolist has average costs of $3 when output is 500 units per hour, it will only charge a price of $3 if the quantity demanded is 500 units per hour at that price point. If the quantity demanded is greater or less than 500 units per hour, the monopolist will need to adjust the price to cover its costs and make a profit. Therefore, choice B is the best answer because it reflects the condition under which the monopolist would charge a price of $3 under average-cost pricing.

Suppose a Monopolist Has Costs Such That When Output Is