Question

In a perfectly competitive market, price equals marginal cost, but this condition is not satisfied for the firm with the revenue and cost conditions depicted in Problem $25-2$. In the long run, what would happen if the government decided to require the firm in Problem $25-2$ to charge a price equal to marginal cost at the firm's long-run output rate?

Short answer

Under monopolistic conditions, the firm cannot increase outcome to the point where costs are minimized without lowering prices.

If the government requires the firm to charge variable costs, the expense will become and ATC will be$\$22$, while the ATC would be$\$25$. The firm's output increases to modules$160$units,

However, it makes no profitlocalid="1653224994967" $\$3$per unit.

Step-by-step solution

Introduction.

• The marginal cost of production is the difference in total production costs that results from producing or producing one additional unit in economics.
• Divide the change in manufacturing costs by the change in quantity to determine marginal cost.

Explanation by Graph.

If the government mandates that the firm charge a price equal to its marginal cost, the firm will suffer losses. Under monopolistic conditions, the firm cannot increase output to the point of minimizing costs without lowering prices.

The variable cost at the company's current lengthy power rating.

The output of the monopolistic market firm is, which is to this same left of both the $ATC$curve's lowest value. If the government requires the firm to start charging the profit margin, it will charge, whereas the ATC will be localid="1653225005780" $\$25.$The company's output increases to units, but it loses moneylocalid="1653225009585" $\$3$per unit.