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

Short description: A graph plots output against price. Long description: The horizontal axis representing output lists the following values from left to right: Q subscript 1 and Q subscript 2. The vertical axis representing dollars lists the following values from bottom to top: P subscript 1, P subscript 2, and P subscript 3. The graph plots three curves and five points. The points are as follows: a (Q subscript 1, P subscript 3), b (Q subscript 2, P subscript 2), c (Q subscript 2, P subscript 1), d (Q subscript 1, P subscript 2), and e (Q subscript 1, P subscript 1). The curve, LRAC passes through the following points: a and b. The curve, MC passes through the point, c. The curve, D passes through the following points: a and c. Curve, D intersects the curves, LRAC and MC at points, a and c.

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.
Textbook 
Microeconomics

Microeconomics


Edition: 17th
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wukong81wukong81
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Thanks for your help!!
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