Question

The hypothetical figure that follows is that of a monopoly firm operating in the short run. Based on this figure, answer the questions below. a. If the monopoly firm is unregulated and seeks to maximize protit, what will be its (1) output rate, and (2) price? b. If you were a regulator charged with setting this firm's price and your objective was to produce a market result as close as possible to that of pure competition while creating for the firm a "fair rate of return," what price would you set? What would be the regulated firm's rate of output at that price? LUB Marginal Cost Average Cost Price, Cost ош Demand Marginal Revenue Q, Q₂ Quantity
please answer all of number 7

Answer 1

7.a ) Ans: Output rate = 0Q₁ and Price = 0A

Explanation:

Under monopoly market structure , the profit maximization condition is where marginal revenue equals marginal cost ( MR = MC)

It is cleared from the above figure that the profit maximizing level of output and price is Q₁ and A respectively.

7.b ) Ans: The regulated firm's rate of output = 0Q₂ and price = 0E

Explanation:

As per the objective of the price regulator , at the regulated level of output and price , the following condition must be satisfied ;

MC = Demand and where Average cost is at its minimum point.