Exhibit 13-4 The following diagram contains information on cost and revenue curves facing a regulated monopoly. Refer to Exhibit 13-4.If the government is able to regulate the monopolist using average-cost pricing,what price and output combinations are expected to result? A) P₅ and Q₂ B) P₂ and Q₂ C) P₄ and Q₃ D) P₆ and Q₄

Question

Quizplus · Accepted Answer

Average-cost pricing involves setting the price equal to the firm's average total cost. In the diagram, the average cost curve intersects the demand curve at point U1, which corresponds to an output of Q₃. At this output level, the average cost is P₄. Therefore, the expected price-output combination is P₄ and Q₃, which is option C.

Exhibit 13-4 the Following Diagram Contains Information on Cost and Revenue