To Allow a Public Utility (Which Is a Natural Monopoly)to

question 15

Multiple Choice

To allow a public utility (which is a natural monopoly) to earn only a normal profit, the government should

• A)do all of the following
• B)set price equal to average cost
• C)equate marginal cost and average cost
• D)set marginal cost equal to marginal revenue
• E)set price equal to marginal cost

Apply the high-low method to estimate costs.

Examine the impact of pricing, advertising, and cost changes on profits through scenario analysis.

Utilize the concept of operating leverage to analyze changes in sales and profit.

Develop a contribution margin income statement and analyze financial outcomes.

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