2. Describe the outcome when the government regulates the price at p2. Where the market demand is above p2, the regulated demand curve for the monopoly is horizontal at p2 (up to Qd). The corresponding marginal revenue curve, MRr, is horizontal where the regulated demand curve is horizontal and equals the marginal revenue curve corresponding to the market demand curve, MR, where the regulated demand curve is downward sloping. The monopoly maximizes its profit by selling Q2 units at p2. The new regulated monopoly optimum is e2, where MRr intersects MC. The firm does not shut down when regulated as long as its average variable cost at Q2 is less than p2.