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Moderate

Monopoly: Regulating Electric Power Companies

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The graph below represents Continental Power, a natural monopoly, which is the only electric power provider in the state of Co​ntinental.

The public utilities commission decides to set a price ceiling that will lead the company to produce the socially optimal quantity. What price will it set, and what will be the profit/loss position of the firm once the price ceiling is imposed?

A

P3 and the firm will earn an economic profit

B

P1 and the firm will suffer an economic loss

C

P2 and the firm will break even

D

P3 and the firm will suffer an economic loss

E

P1 and the firm will earn an economic profit