-If an Average Cost Pricing Rule Is Imposed on the Natural

question 192

Multiple Choice

-If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then consumer surplus will be

• A) $0.
• B) $8 million.
• C) $9 million.
• D) $16 million.

---

Definitions:

Contribution Margin Ratio

The percentage of sales revenue remaining after variable costs are deducted, indicating how much contributes to fixed costs and profit.

Fixed Expenses

Costs that do not change with the level of production or sales over a certain period, such as rent, salaries, and insurance.

Sales

The total amount received from selling goods or services over a given period.

Residual Income

The income that exceeds the minimum required return on an investment or business segment.