Figure 15-7 Figure 15-7 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-7.Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit maximizing owners.If regulators require that the firm produces the economically efficient output level,what is this level and what price will be charged?

Question

Figure 15-7  Figure 15-7 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-7.Suppose the government regulates this industry in order to remove the inefficiency implied by the behavior of the profit maximizing owners.If regulators require that the firm produces the economically efficient output level,what is this level and what price will be charged?

Quizplus · Accepted Answer

The economically efficient output level is Q₄ units, and the price that will be charged is P₄. This is because at Q₄ units, the marginal cost of production is equal to the marginal benefit to consumers, which is the definition of economic efficiency.

Figure 15-7 Figure 15-7 Shows the Market Demand and Cost