The figure below shows revenue and cost curves of a natural monopoly firm.Figure 14.1

In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
-Suppose that the demand for apples in Washington is elastic and the supply is inelastic. If the government of Washington passes a law prohibiting the use of synthetic pesticides that increases the marginal and average costs of producing apples, then:
A)the price of Washington State apples will decline.
B)Washington will stop producing apples, and New York apple growers will benefit.
C)apple growers will pass most of the increased costs on to consumers in the form of higher apple prices.
D)apple growers will keep prices constant but reduce costs by advertising less.
E)apple growers will bear most of the increased costs of regulation, and prices will increase only slightly.

Question

The figure below shows revenue and cost curves of a natural monopoly firm.Figure 14.1
​
  In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
-Suppose that the demand for apples in Washington is elastic and the supply is inelastic. If the government of Washington passes a law prohibiting the use of synthetic pesticides that increases the marginal and average costs of producing apples, then:
A)the price of Washington State apples will decline. 
B)Washington will stop producing apples, and New York apple growers will benefit. 
C)apple growers will pass most of the increased costs on to consumers in the form of higher apple prices. 
D)apple growers will keep prices constant but reduce costs by advertising less. 
E)apple growers will bear most of the increased costs of regulation, and prices will increase only slightly.

Quizplus · Accepted Answer

Since the supply is inelastic, producers cannot easily reduce the quantity supplied, so they bear most of the increased costs. Demand being elastic means consumers are sensitive to price changes, so prices can only increase slightly without reducing demand significantly.

The Figure Below Shows Revenue and Cost Curves of a Natural