The following graph gives cost and revenue data for a monopolist:

-Refer to the above graph to answer this question.If the monopolist is regulated and forced to charge the socially optimum price,what will be its total profit or loss as a result?
A)$0.
B)Loss of $5.
C)Loss of $550.
D)Profit of $700.
E)Profit of $950.

Question

The following graph gives cost and revenue data for a monopolist:
 
-Refer to the above graph to answer this question.If the monopolist is regulated and forced to charge the socially optimum price,what will be its total profit or loss as a result?
A)$0. 
B)Loss of $5. 
C)Loss of $550. 
D)Profit of $700. 
E)Profit of $950.

Quizplus · Accepted Answer

The socially optimum price is where the marginal cost curve intersects with the demand curve, which is at a quantity of 8. At this quantity, the price is $300. However, the monopolist's average total cost at this quantity is $550, which is higher than the socially optimum price. Therefore, if the monopolist is regulated and forced to charge the socially optimum price, it will incur a loss of ($300 - $550) x 8 = $-2,400 or a loss of $550. Therefore, the answer is C.

The Following Graph Gives Cost and Revenue Data for a Monopolist