How much would the monopoly in the above graph spend to prevent its price being regulated to marginal (or average) cost?
A)$16.
B)$8.
C)$4.
D)$0.

Question

Quizplus · Accepted Answer

The monopolist would try to prevent its price being regulated to marginal cost if its average cost curve is above the market demand curve at the profit-maximizing quantity. In the given graph, the monopolist's average cost curve intersects the market demand curve at a price of $8. At this price, the monopolist earns a profit, but if it were forced to set the price to the marginal cost, it would incur losses. 
To prevent its price being regulated to marginal cost, the monopolist would spend an amount equal to the difference between the marginal cost and the average cost at the profit-maximizing quantity, which is $4 in this case ($12 average cost - $8 marginal cost). Therefore, the answer is B.

How Much Would the Monopoly in the Above Graph Spend