Market power and monopoly

e linand I. DWI:P -LATC a. This firm a natural mono b. This firm carn a profit C. If the government requires the firm to charge no more than its marginal cost of production. sold at a price of . The problem with capping prices at marginal cost is that d. If the government allows firms to charge no more average total costs of production. units will be sold at a price of . The problem with capping prices at average total cost is that Graphically, deadweight loss in the area bet MC (supply ) curves over the units of output not produced. hut that is under competitive conditions. There is no deadweight loss, in this case because output is at the competitive level under the pricing rule. / C. In the graph. shade the areas representing dead