Government can eliminate all monopoly profits by setting a price equal to ______________.

Average variable cost

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Average cost

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Average fixed cost

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Marginal cost

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Solution

The correct option is B Average cost
The government requires the monopoly to set a price equal to average cost. That is, it requires the firm to choose an (output, price) pair for which AC is equal to AR. This regulation eliminates profit, but does not necessarily lead to an efficient outcome.

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Similar questions

Study the MC and MR curves for a monopoly firm given in the following figure. Calculate the maximum profit assuming that fixed costs are negligible. (All prices and costs are in rupees)

a) Why is Total Variable Cost curve inverse S- shaped?
b) What is Average Fixed Cost of a firm? Why is an Average Fixed Cost Curve a rectangular Hyperbola? Explain with help of a diagram.

If the monopolist firm of Exercise 3, was a public sector firm. The government set a rule for its manager to accept the government fixed price as given (i.e. to be a price taker and therefore behave as a firm in a perfectly competitive market), and the government decide to set the price so that demand and supply in the market are equal. What would be the equilibrium price, quantity and profit in this case?

Q. If fixed cost of a product is 90,000 and unit variable cost Rs. 25 and selling price Rs. 55. Find the level of production to earn a profit of Rs. 30,000___.

Q. When price is less than average variable cost at the profit-maximising level of output, a firm should __________.

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Government can eliminate all monopoly profits by setting a price equal to ______________.

The correct option is B Average cost The government requires the monopoly to set a price equal to average cost. That is, it requires the firm to choose an (output, price) pair for which AC is equal to AR. This regulation eliminates profit, but does not necessarily lead to an efficient outcome.

The correct option is B Average cost
The government requires the monopoly to set a price equal to average cost. That is, it requires the firm to choose an (output, price) pair for which AC is equal to AR. This regulation eliminates profit, but does not necessarily lead to an efficient outcome.