their behavior and keeping prices high. Either way, the result will not be the greater competition that was

desired.

A third alternative is that regulators may decide to set prices and quantities produced for this industry. The

regulators will try to choose a point along the market demand curve that benefits both consumers and the

broader social interest. Point C illustrates one tempting choice: the regulator requires that the firm produce

the quantity of output where marginal cost crosses the demand curve at an output of 8, and charge the price of
270 11 • Monopoly and Antitrust Policy

3.5, which is equal to marginal cost at that point. This rule is appealing because it requires price to be set

equal to marginal cost, which is what would occur in a perfectly competitive market, and it would assure

consumers a higher quantity and lower price than at the monopoly choice A. In fact, efficient allocation of
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