How much would the monopoly in the figure below spend to prevent its price being regulated to marginal (or average)cost?
A) $16
B) $8
C) $4
D) $0

Question

Quizplus · Accepted Answer

The monopoly would spend up to the difference between its profits before and after regulation to prevent price regulation. Before regulation, its profit is the area between the demand curve and the marginal cost curve up to the monopoly quantity. After regulation to marginal cost, its profit would significantly decrease or become zero. The exact amount depends on the specific details of the demand and cost curves, but the monopoly would spend up to the total profit loss to prevent this regulation. Without the specific figure, we assume the maximum difference in profit as the answer.

How Much Would the Monopoly in the Figure Below Spend