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.

---

Definitions:

Journalizing

The entering of transaction data in the journal.

Trial Balance

A bookkeeping worksheet listing the balances in each ledger account, used to verify that the sum of debits equals the sum of credits.

Credit Side

The side of an accounting ledger where increases in liabilities, equity, and revenue, or decreases in assets and expenses are recorded.

Debit Side

The left side of an accounting ledger where debits are recorded, typically indicating increases in assets or expenses and decreases in liabilities or equity.