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1.The following graph shows the equilibrium of a monopoly firm with and without price regulation. You are to explain a.Why the MR and demand (AR)

1.The following graph shows the equilibrium of a monopoly firm with and without price regulation. You are to explain

a.Why the MR and demand (AR) curves slope downward from left to right? Explain. What type of profits a monopolist is earning?

b.When the regulator tried to regulate the price at Pc, the manager of the firm pleaded that this price regulation will drive the firm out of business. Do you agree and if so, why?

Market Failure A Case Where Price Regulation Drives the Monopolist Out of Business Price + MC ATC PM pc Regulated price MR Demand Quantity 14-20

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