Refer to the Diagram for a Pure Monopolist

question 221

Multiple Choice

Refer to the diagram for a pure monopolist. If a regulatory commission seeks to achieve the socially optimal allocation of resources to this line of production, it will set a price of

• A)P₁.
• B)P₃.
• C)P₂.
• D)P₄.

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Definitions:

Budget Constraint

A budget constraint represents the combination of goods and services that a consumer can purchase given their income and the prices of those goods and services.

Marginal Utility

The incremental enjoyment or value obtained from consuming an extra unit of a good or service.

Income-Consumption Curve

A graph that shows how a consumer's optimal bundle of goods changes as their income changes, all else being constant.

Marginal Utility

The change in satisfaction or utility gained from consuming an additional unit of a good or service.