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 this firm is a government-owned natural monopoly and imposes a price so as to achieve allocative efficiency in this market.The amount of tax revenue that the government must raise elsewhere in the economy to offset the losses of this firm is represented by the area

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 this firm is a government-owned natural monopoly and imposes a price so as to achieve allocative efficiency in this market.The amount of tax revenue that the government must raise elsewhere in the economy to offset the losses of this firm is represented by the area

Quizplus · Accepted Answer

The area representing the losses of the firm (deadweight loss) is given by the triangle P₁. To offset these losses, the government must raise tax revenue equal to this amount, which is represented by the rectangle P₁bc. Therefore, the correct answer is B.

The Diagram Below Shows the Market Demand Curve and the Cost