What does price regulation involve when applied to a monopolist?

Price regulation, when applied to a monopolist, often involves imposing a price ceiling. This price ceiling is designed to protect consumers from excessively high prices that can occur in a monopolistic market due to the lack of competition. An effectively set price ceiling can ensure that the price remains affordable for consumers while allowing the monopolist to cover costs and potentially earn a normal profit.

The correct answer highlights that if the price ceiling is set appropriately, it can prevent shortages by ensuring that the price is not set too low, which could lead to excessive demand that exceeds supply. This balance is crucial in a regulated monopoly, where the aim is to mitigate the monopolist's ability to set prices solely based on profit maximization while ensuring that consumers have access to goods or services.

In contrast, the other options do not effectively address the concept of price regulation for monopolists. Setting prices above market equilibrium, implementing a price floor, or allowing free market competition do not align with the goals of regulation aimed at controlling monopolistic pricing practices.