Suppose the Local Government Is Considering Using Marginal Cost Pricing

question 111

Multiple Choice

Suppose the local government is considering using marginal cost pricing to set rates for a cable TV company.Which of the following arguments supports marginal cost pricing?

• A)Marginal cost pricing gives the monopoly economic profit and a reason to stay in business.
• B)Marginal cost pricing gives the firm a normal economic profit and a reason to stay in business.
• C)Marginal cost pricing is allocatively efficient.
• D)Average cost pricing requires subsidies, which can be costly.
• E)Average cost pricing forces monopolies to operate at a loss.

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Definitions:

Useful Life

The estimated period over which a fixed asset is expected to be usable by the organization, impacting its depreciation calculation.

Operating Costs

The ongoing expenses related to running a business, excluding the cost of goods sold, such as rent, utilities, and payroll.

Service Hours

The total hours spent by an organization or employee providing services to clients or working on service-related tasks.

Economic Value

The value of an asset deriving from its ability to generate income or its potential use in producing goods and services.