Suppose that the supply curve in the top panel of Figure 7.5 represents MC_Private, and that the demand curve represents MB _social Draw an private MC _social curve such that Q* is the efficient level of output. Besides a price ceiling, what other policy could reduce output to Q*?

Figure 7.5

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$ per Unit Pcompetinon PCeiling $ per Unit Pmonopoly PCeiling Shortage Q* Qcompetition Qmonopoly Q Marginal Revenue Supply Demand Quantity Marginal Cost Average Cost Demand Quantity Perfect Competition A price ceiling in a competitive market causes a decrease in the quantity sup- plied and a shortage. Monopoly A price ceiling on a monopoly market can increase the quantity supplied while lowering the price and eliminating dead- weight loss.