In order to eliminate the inefficiency brought about by a monopoly, the government wants to impose a price ceiling on the monopoly.What is the optimal price to be imposed?
A)the competitive price.
B)the competitive price - unless it is below ATC.
C)the competitive price - unless it is below MR.
D)the competitive price - unless it is above ATC.

Question

Quizplus · Accepted Answer

Imposing a price ceiling equal to the competitive price would result in the monopoly facing losses, as the price may fall below average total cost (ATC). Therefore, the optimal price ceiling is the competitive price minus any amount that would result in the price being above ATC. This ensures that the monopoly is able to cover its costs while still facing some competition. Therefore, option B is the best choice.

In Order to Eliminate the Inefficiency Brought About by a Monopoly