The diagram below shows the market demand curve and the cost curves for a single firm. FIGURE 12-6
-Refer to Figure 12-6.Suppose the firm is being regulated using a policy of average-cost pricing.The resulting price and output would be

Question

The diagram below shows the market demand curve and the cost curves for a single firm.

FIGURE 12-6
-Refer to Figure 12-6.Suppose the firm is being regulated using a policy of average-cost pricing.The resulting price and output would be

Quizplus · Accepted Answer

Under average-cost pricing, the regulated price will be equal to the firm's average total cost at the profit-maximizing level of output. In Figure 12-6, the average total cost curve intersects the demand curve at a quantity of 11 units. Therefore, the regulated price will be equal to the firm's average total cost at a quantity of 11 units, which is P₃. At this price, the firm will produce the profit-maximizing level of output, which is Q₁.

The Diagram Below Shows the Market Demand Curve and the Cost