Question

c) a Nash equilibrium: Sears keeps its prices high and Walmart lowers its prices. d) no Nash equilibrium Price ond Cost ATC LOSS MRO, O, O Quantity 40. Refer to the graph above. If regulators want to achieve economic efficiency, how will they set the monopoly price (P) and quantity (Q)? a) At P1, Q1 b) At P2, Q2 c) At P3, Q3 d) None of the above 41. Refer to the graph above. If regulators want to ensure that the owners of the monopoly are able to earn a normal rate of return on their investment, how will they set the monopoly price (P) and quantity (Q)? a) At Pi, Q1 b) At P2, Q2 c) At P3, Q3 d) None of the above Focus

Answer 1

Question 40

Regulators wants to achieve economic efficiency.

Economic efficiency is achieved when output corresponding to intersection of demand curve and MC curve is produced.

Output corresponding to intersection of demand curve and MC curve is Q3. Price corresponding to Q3 output is P3.

So,

Regulators will set monopoly price and quantity at P3, Q3.

Hence, the correct answer is the option (c).

Question 41

When regulator wants to ensure that monopoly earns normal rate of return on their investment then, in that case, they would fix output and price corresponding to point of intersection of ATC curve and demand curve.

ATC curve and demand curve are intersecting each other corresponding to output of Q2 and Price, P2.

So,

Regulators will set the monopoly price and quantity at P2, Q2.

Hence, the correct answer is the option (b).