(Figure: Demand,Revenue,and Cost Curves) Use Figure: Demand,Revenue,and Cost Curves.Figglenuts-R-Us is a monopolist in the figglenut market.If the government regulated the figglenut market by setting a price ceiling of $40,Figglenuts-R-Us might:

A) produce 60 figglenuts to maximize profits.
B) produce 120 figglenuts in the long run to maximize profits.
C) exit in the long run.
D) increase the price to $60.

Question

Charlize Duden · Accepted Answer

Final Answer : C, Explanation :  If the government sets a price ceiling of $40, Figglenuts-R-Us will face a situation where the price ceiling is below their average total cost curve. This means that they will be forced to produce at a loss, and will eventually exit the market in the long run. Therefore, the best choice for Figglenuts-R-Us is to exit in the long run.

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