Fair-Return+Price

**Fair Return Price**
Fair return price is the third option of price for monopolies. Instead of P=MC or MR=MC then up to demand, in a fair return price, P=ATC. This way, firms don't go bankrupt like they could in the socially optimum price control. This way, there is a "fair return" to company's because they are making just as much as their costs, so that they come out with zero economic profit. Yet that is still good because it means they are doing just as well as they would if they did anything else. This also means that the monopoly will not close, but it doesnt make it any more appealing for another company to enter the monopoly. Keeping it a monopolistic industry. For an example of this, pretend that it is a heat industry. It costs them 1,000 dollars to cover average variable costs and average fixed costs. So, the government imposes a price control to keep the company from ripping off customers, especially with things like heating or other things that are closer to being inelastic. So, to keep the company from getting too much from the customer, they set the price so that it equals Average total costs. This way people aren't getting so much surplus taken from them, and the company is making a zero economic profit.


 * Picture**

[|Defining monopoly and fair-return price] [|Regulated Monopoly] [|Monopolies and example graphs]
 * Links**

Fair return is when price is equal to _? A) MC B) ATC C) MR D) 10$
 * Sample Question**

[|Answer]