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FIGURE 10.9 Regulated monopoly. The socially optimal price P, found where D and MC intersect, will result in an efficient allocation of resources but may entail losses to the monopoly. The fair- return price P;will allow the monopolist to break even but will not fully correct the underallocation of resources. Monopoly price Fair-return Socially optimal price price ATC ' MC MR b Qm Quantity Price and costs (dollars) P.

FIGURE 10.9 Regulated monopoly. The socially optimal price P, found where D and MC intersect, will result in an efficient allocation of resources but may entail losses to the monopoly. The fair- return price P;will allow the monopolist to break even but will not fully correct the underallocation of resources. Monopoly price Fair-return Socially optimal price price ATC ' MC MR b Qm Quantity Price and costs (dollars) P.

Economics For Today
Economics For Today
10th Edition
ISBN:9781337613040
Author:Tucker
Publisher:Tucker
Chapter9: Monopoly
Section: Chapter Questions
Problem 7SQP
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In view of the problems involved in regulating natural monopolies, compare socially optimal (marginal-cost) pricing and fair-return pricing by referring again to Figure 10.9. Assuming that a government subsidy might be used to cover any loss resulting from marginal-cost pricing, which pricing policy would you favor? Why? What problems might such a subsidy entail?

FIGURE 10.9 Regulated monopoly. The socially optimal price P, found where D and MC intersect, will result in an efficient allocation of resources but may entail losses to the monopoly. The fair- return price P;will allow the monopolist to break even but will not fully correct the underallocation of resources. Monopoly price Fair-return Socially optimal price price ATC ' MC MR b Qm Quantity Price and costs (dollars) P.
Transcribed Image Text:FIGURE 10.9 Regulated monopoly. The socially optimal price P, found where D and MC intersect, will result in an efficient allocation of resources but may entail losses to the monopoly. The fair- return price P;will allow the monopolist to break even but will not fully correct the underallocation of resources. Monopoly price Fair-return Socially optimal price price ATC ' MC MR b Qm Quantity Price and costs (dollars) P.
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