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
-If social regulation causes the supply curve in a market to shift up because of higher marginal costs, then:
A)both consumer and producer surplus will decrease.
B)both producer and consumer surplus will increase.
C)consumers will gain at the expense of producers.
D)producers will gain at the expense of consumers.
E)there will be no change in the sum of producer and consumer surplus, although its division may change.

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
-If social regulation causes the supply curve in a market to shift up because of higher marginal costs, then:
A)both consumer and producer surplus will decrease. 
B)both producer and consumer surplus will increase. 
C)consumers will gain at the expense of producers. 
D)producers will gain at the expense of consumers. 
E)there will be no change in the sum of producer and consumer surplus, although its division may change.

Quizplus · Accepted Answer

With social regulation causing the supply curve to shift up due to higher marginal costs, the equilibrium price will increase, and the quantity demanded will decrease. This will result in both consumer and producer surplus decreasing as consumers pay more for the same quantity of output, and producers receive less revenue for their goods. Hence, both producer and consumer surplus will be affected adversely.

The Figure Below Shows Revenue and Cost Curves of a Natural