Chapter 11R, Problem 23MCQ

To determine

The correct option for given situation where price is required for regulated monopoly market.

Answer to Problem 23MCQ

Option d is correct answer.

Explanation of Solution

Explanation for correct option:

d.

In regulated monopoly market, government forces the firm to lower their prices by increasing the output level as by increasing the output level, the total cost will reduce as shown in the graph.

  

To earn normal profit, firm should charge price that is equal to ATC. Therefore, option d is correct.

Explanation for incorrect options:

a.

Since, if monopolist charges price that is equivalent to Mc tehn it realizes maximum profit. Therefore, option a is incorrect.

b.

If the prices are charged that is equal to average fixed cost only then it may or may not earns above the normal level. This is because average variable cost is not considered. Therefore, option b is incorrect.

c.

If the prices are charged that is equal to average variable cost only then it may or may not earns above the normal level. This is because average fixed cost is not considered. Therefore, option c is incorrect.

e.

In monopoly, if price is charged equal to total cost then it will be too high for consumers to buy and company may face selling issues. Therefore, option e is incorrect.

Economics Concept Introduction

Average total cost: Average total cost of production per unit is comprised of two cost components that is average fixed cost and average variable cost. In short-run, fixed cost of the production remains similar.