Final answer:
The marginal cost curve, when viewed as the firm's supply curve above average variable cost, will shift upwards if marginal costs increase, leading to a decreased quantity supplied at any given price. Regulators setting prices at the intersection of marginal costs and demand curve aim for efficient resource allocation, mimicking competitive market outcomes.
Option 'd' is the correct.
Step-by-step explanation:
When examining a marginal cost curve, another perspective is to look at it as the firm's individual supply curve. This is particularly applicable when looking at the curve above the average variable cost. If marginal costs increase, the firm's individual supply curve will shift upwards.
This means that, at each potential price point, the firm would now be willing to supply less quantity of the good compared to the situation before the increase in marginal costs.
For instance, if the market price is set and marginal costs rise, the new intersection point on the supply curve would represent a lower quantity supplied, indicating that the firm must now receive a higher price to supply the same amount of goods as before.
When regulators set prices and quantities, they aim to pick a point on the market demand curve that is beneficial for both consumers and social welfare. For example, requiring a firm to produce where marginal cost meets demand curve can result in an efficient allocation of resources, wherein the consumer's valuation of the last unit equals the cost to produce it. This often happens at lower prices and higher quantities than what would prevail under a monopoly, mirroring conditions of a perfectly competitive market.