Chapter 77, Problem 5MCQ

To determine

The lowest regulated price that the government could expect the monopolist should maintain in the long run.

Answer to Problem 5MCQ

From the available options, the correct option is ${\text{P}}_3$.

Explanation of Solution

From the data on the graph, the monopolist should maintain the lowest regulated price that the government could expect in the long run would be the point where the price is denoted by ${\text{P}}_3$ because at this point, price and cost margins are equal to the inverse of demand elasticity.

Therefore, the correct option is c (${\text{P}}_3$) and all other options are incorrect as they consider lower or higher prices and the cost-price range does not equate to demand.

Economics Concept Introduction

Introduction: A monopoly that involves high start-up costs and barriers to entry and provides the largest supplier in any industry is called a natural monopoly because it covers powerful economies of scale to conduct the business. A person who has a monopoly on the business is called a monopolist.