When the government regulates the price in a monopoly market by setting price at the level where demand equals marginal cost:

Question

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When the government regulates the price in a monopoly market by setting price at the level where demand equals marginal cost, the monopolist produces output at the efficient level. This is because the monopolist is no longer able to overcharge consumers and make excess profits. Instead, they must produce at a level where their marginal cost equals the price, which is the socially optimal level of output. A and B are incorrect because reducing output would result in a shortage, and the monopolist's marginal revenue curve becoming horizontal would only occur if they were able to charge a higher price than the regulated price. C is incorrect because the monopolist's profits at the regulated price may not necessarily be positive, as it depends on their cost structure.

When the Government Regulates the Price in a Monopoly Market