Figure 15-7 Figure 15-7 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-7.If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of ________ and charge a price of ________.

Question

Figure 15-7  Figure 15-7 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-7.If the regulators of the natural monopoly allow the owners of the firm to break even on their investment the firm will produce an output of ________ and charge a price of ________.

Quizplus · Accepted Answer

At the output level of Q₃ units, the marginal cost equals the marginal revenue. Therefore, this is the profit-maximizing output level. If the regulators allow the firm to break even on their investment, the firm will charge a price that equals its average total cost at this output level, which is P₃. Therefore, the answer is D: Q₃ units; P₃.

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