The following figure shows the marginal cost [MC],marginal revenue [FH] and demand [FG] curves for a monopolist who faces constant costs.
Figure 15-1
Refer to Figure 15-1.If the regulator sets a maximum price of P₂,the monopolist's demand curve is _____.

Question

The following figure shows the marginal cost [MC],marginal revenue [FH] and demand [FG] curves for a monopolist who faces constant costs.
Figure 15-1

Refer to Figure 15-1.If the regulator sets a maximum price of P₂,the monopolist's demand curve is _____.

Quizplus · Accepted Answer

When the regulator sets a maximum price of P₂, the monopolist cannot charge a higher price than P₂. This means that the demand curve is now the portion of the original demand curve that corresponds to a price of P₂ or lower. Therefore, the monopolist's demand curve is P₂EG.

The Following Figure Shows the Marginal Cost [MC],marginal Revenue [FH]