Asked by Ryane Smalley on Jul 16, 2024
Verified
(Figure: Demand,Revenue,and Cost Curves) Use Figure: Demand,Revenue,and Cost Curves.Figglenuts-R-Us is a monopolist in the figglenut market.If the government wanted to regulate Figglenuts-R-Us such that it would minimize the deadweight loss while allowing the firm to break even,it would impose a price ceiling of:
A) $40.
B) $46.
C) $50.
D) $65.
Deadweight Loss
The drop in economic productivity happening when the optimal free market balance for a good or service isn't met.
Price Ceiling
A price ceiling is a government-imposed limit on how high the price of a good or service can be charged in the market, usually set below the equilibrium price to ensure affordability of essential goods.
Monopolist
An entity that is the sole provider of a particular good or service, giving it the ability to control market prices and output levels.
- Acquire insight into the consequences of government regulatory measures on monopolistic markets, notably through the enforcement of price limits.
Verified Answer
AC
Alivia CroteauJul 17, 2024
Final Answer :
C
Explanation :
To minimize deadweight loss, the government would set the price at the point where marginal cost intersects with marginal revenue, which is $50. At this price, Figglenuts-R-Us will be able to break even, represented by the point where the total cost curve intersects with the total revenue curve. A price ceiling below $50 would result in a shortage and more deadweight loss, while a price ceiling above $50 would result in a surplus and still some deadweight loss. Therefore, the best choice would be a price ceiling of $50.
Learning Objectives
- Acquire insight into the consequences of government regulatory measures on monopolistic markets, notably through the enforcement of price limits.