Refer to the above diagram for a pure monopolist. If a regulatory commission set

Question

Refer to the above diagram for a pure monopolist. If a regulatory commission sets the price to achieve the socially optimal allocation of resources, it will have to:

tax the monopolist P3P1 per unit to prevent the monopolist from realizing an economic profit.

subsidize the monopolist or the monopolist will go bankrupt in the long run.

subsidize the monopolist P1P4 per unit to allow the monopolist to break even.

tax the monopolist P1P2 per unit to prevent the monopolist from realizing an economic profit.

tax the monopolist P3P1 per unit to prevent the monopolist from realizing an economic profit.

subsidize the monopolist or the monopolist will go bankrupt in the long run.

subsidize the monopolist P1P4 per unit to allow the monopolist to break even.

tax the monopolist P1P2 per unit to prevent the monopolist from realizing an economic profit.

Refer to the above diagram for a pure monopolist. If a regulatory commission sets the price to achieve the socially optimal allocation of resources, it will have to: tax the monopolist P3P1 per unit to prevent the monopolist from realizing an economic profit. subsidize the monopolist or the monopolist will go bankrupt in the long run. subsidize the monopolist P1P4 per unit to allow the monopolist to break even. tax the monopolist P1P2 per unit to prevent the monopolist from realizing an economic profit.

Explanation / Answer

Refer to the above diagram for a pure monopolist. If a regulatory commission sets the price to achieve the socially optimal allocation of resources, it will have to:

subsidize the monopolist or the monopolist will go bankrupt in the long run.

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