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Setting price equal to MC means the firm will produce too little output to stay in business. It must be allowed to produce a greater quantity to make a profit. O Since MC is falling and always below ATC, price would be below marginal revenue. O Setting price equal to MC means the firm will be forced to produce too much output to stay in business. It must be allowed to lower the quantity produced to make a profit. Since MC is falling and always below ATC, the firm will not cover its costs if price equals marginal cost. To stay in business, firms must at least cover costs. What price would it charge if it were unregulated? O It would set quantity where MRMC and then charge a price that consumers are willing to pay for that quantity based on the demand curve. O It would set quantity and price where AC intersects the demand curve because that is what consumers are willing to pay. O It would set quantity and price where MC intersects the demand curve because that is what consumers are willing to pay. O It would set quantity where MR intersects demand and then charge a price that consumers are willing to pay for that quantity based on the demand curve. c. What price would you advise that it should be allowed to charge? At minimum, it must be allowed to charge its (Click to select) cost, otherwise it will go out of business. Alternatively, if government subsidized all fixed costs, it could charge a price equal to its [(Click to select) cost.

Setting price equal to MC means the firm will produce too little output to stay in business. It must be allowed to produce a greater quantity to make a profit. O Since MC is falling and always below ATC, price would be below marginal revenue. O Setting price equal to MC means the firm will be forced to produce too much output to stay in business. It must be allowed to lower the quantity produced to make a profit. Since MC is falling and always below ATC, the firm will not cover its costs if price equals marginal cost. To stay in business, firms must at least cover costs. What price would it charge if it were unregulated? O It would set quantity where MRMC and then charge a price that consumers are willing to pay for that quantity based on the demand curve. O It would set quantity and price where AC intersects the demand curve because that is what consumers are willing to pay. O It would set quantity and price where MC intersects the demand curve because that is what consumers are willing to pay. O It would set quantity where MR intersects demand and then charge a price that consumers are willing to pay for that quantity based on the demand curve. c. What price would you advise that it should be allowed to charge? At minimum, it must be allowed to charge its (Click to select) cost, otherwise it will go out of business. Alternatively, if government subsidized all fixed costs, it could charge a price equal to its [(Click to select) cost.

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter9: Monopoly
Section: Chapter Questions
Problem 29CTQ: Imagine that you ale managing a small firm and thinking about entering the market of a monopolist....
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Setting price equal to MC means the firm will produce too little output to stay in business. It must be allowed to produce a greater quantity to make a profit. O Since MC is falling and always below ATC, price would be below marginal revenue. O Setting price equal to MC means the firm will be forced to produce too much output to stay in business. It must be allowed to lower the quantity produced to make a profit. Since MC is falling and always below ATC, the firm will not cover its costs if price equals marginal cost. To stay in business, firms must at least cover costs. b. What price would it charge if it were unregulated? O It would set quantity where MRMC and then charge a price that consumers are willing to pay for that quantity based on the demand curve. O It would set quantity and price where AC intersects the demand curve because that is what consumers are willing to pay. OIt would set quantity and price where MC intersects the demand curve because that is what consumers are willing to pay. It would set quantity where MR intersects demand and then charge a price that consumers are willing to pay for that quantity based on the demand curve. c. What price would you advise that it should be allowed to charge? At minimum, it must be allowed to charge its (Click to select) cost, otherwise it will go out of business. Alternatively, if government subsidized all fixed costs, it could charge a price equal to its (Click to select) cost.
Transcribed Image Text:Setting price equal to MC means the firm will produce too little output to stay in business. It must be allowed to produce a greater quantity to make a profit. O Since MC is falling and always below ATC, price would be below marginal revenue. O Setting price equal to MC means the firm will be forced to produce too much output to stay in business. It must be allowed to lower the quantity produced to make a profit. Since MC is falling and always below ATC, the firm will not cover its costs if price equals marginal cost. To stay in business, firms must at least cover costs. b. What price would it charge if it were unregulated? O It would set quantity where MRMC and then charge a price that consumers are willing to pay for that quantity based on the demand curve. O It would set quantity and price where AC intersects the demand curve because that is what consumers are willing to pay. OIt would set quantity and price where MC intersects the demand curve because that is what consumers are willing to pay. It would set quantity where MR intersects demand and then charge a price that consumers are willing to pay for that quantity based on the demand curve. c. What price would you advise that it should be allowed to charge? At minimum, it must be allowed to charge its (Click to select) cost, otherwise it will go out of business. Alternatively, if government subsidized all fixed costs, it could charge a price equal to its (Click to select) cost.
t ces Econocompany is under investigation by the U.S. Department of Justice for violating antitrust laws. The government decides that Econocompany has a natural monopoly and that, if it is to keep the government's business, it must sell at a price equal to marginal cost. Econocompany says that it can't do that and hires you to explain to the government why it can't. a. Explain why in reference to the following graph. Price Econocompany A Natural Monopoly MR Quantity ATC MC D
Transcribed Image Text:t ces Econocompany is under investigation by the U.S. Department of Justice for violating antitrust laws. The government decides that Econocompany has a natural monopoly and that, if it is to keep the government's business, it must sell at a price equal to marginal cost. Econocompany says that it can't do that and hires you to explain to the government why it can't. a. Explain why in reference to the following graph. Price Econocompany A Natural Monopoly MR Quantity ATC MC D
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