Question

In: Economics

If a regulatory commission wants to ensure that a monopolist produces the largest quantity of output...

If a regulatory commission wants to ensure that a monopolist produces the largest quantity of output that is consistent with earning a normal profit, it will require the monopolist to charge a price equal to its

A. marginal cost.

B. average fixed cost.

C. average variable cost.

D. average total cost.

E. total cost.

Solutions

Expert Solution

Option D

D. average total cost.

An economic profit is zero then the firm is earning a normal profit

Economic profit =(P-ATC)*Q

this is zero when P=ATC

The government will charge a price equal to the ATC.


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