In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation.Figure 14.2
In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-When a monopoly is regulated it is required to sell lower output at a lower price.

Question

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation.Figure 14.2
  In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-When a monopoly is regulated it is required to sell lower output at a lower price.

Quizplus · Accepted Answer

The figure does not indicate that the monopoly is required to sell lower output at a lower price. The regulation in this case appears to be focused on reducing pollution by requiring the firm to incur a cost (FG) for each unit of output. As a result, the supply curve shifts upward from S₁ to S₂. The equilibrium price and quantity both increase as a result.

In the Following Figure, the First Panel Shows a Market