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The diagram below shows the market demand curve and the cost curves for a single firm.



FIGURE 12-7

Refer to Figure 12-7. Suppose this firm is being regulated using a policy of marginal-cost pricing. To maintain the resulting level of output,

▸ the government would have to subsidize the firm or it will eventually shut down.

▸ the regulator would have to allow the firm to keep the monopoly profits at this level of output.

▸ the average total cost curve would have to shift up.

▸ the government would have to accept the allocative inefficiency associated with this level of output.

▸ the demand curve would have to the left.

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