Use the following to answer question:
Figure: Demand,Revenue,and Cost Curves
-(Figure: Demand,Revenue,and Cost Curves)Use Figure: Demand,Revenue,and Cost Curves.Figglenuts-R-Us is a monopolist in the figglenut market.If the government regulated the figglenut market by setting a price ceiling of $40,Figglenuts-R-Us might:
A)produce 60 figglenuts to maximize profits.
B)produce 120 figglenuts in the long run to maximize profits.
C)exit in the long run.
D)increase the price to $60.

Question

Use the following to answer question:
Figure: Demand,Revenue,and Cost Curves 
-(Figure: Demand,Revenue,and Cost Curves)Use Figure: Demand,Revenue,and Cost Curves.Figglenuts-R-Us is a monopolist in the figglenut market.If the government regulated the figglenut market by setting a price ceiling of $40,Figglenuts-R-Us might:
A)produce 60 figglenuts to maximize profits. 
B)produce 120 figglenuts in the long run to maximize profits. 
C)exit in the long run. 
D)increase the price to $60.

Quizplus · Accepted Answer

If the government sets a price ceiling of $40, Figglenuts-R-Us will face a situation where the price ceiling is below their average total cost curve. This means that they will be forced to produce at a loss, and will eventually exit the market in the long run. Therefore, the best choice for Figglenuts-R-Us is to exit in the long run.

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