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

If the government imposes a price ceiling at the competitive price, it will promote efficiency and prevent the monopoly from charging a price above the competitive level. However, if the competitive price is lower than the average total cost (ATC), the monopoly will suffer losses and might exit the market. Therefore, the optimal price ceiling should be the competitive price, unless it falls below the monopoly's ATC, in which case the price ceiling should be set at the monopoly's ATC to prevent it from leaving the market.

In Order to Eliminate the Inefficiency Brought About by a Monopoly,the