Figure 15-16 Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-16. 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 15-16  Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-16. 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 where the price equals marginal cost (P=MC). In the context of the options provided, Q4 units at P4 would typically represent this efficient point, assuming P4 is the price where the demand curve intersects the marginal cost curve.

Figure 15-16 Figure 15-16 Shows the Market Demand and Cost