If a Natural Monopoly Is Forced to Set a Price

question 6

Multiple Choice

If a natural monopoly is forced to set a price consistent with price efficiency,it will

• A)Set price above marginal cost.
• B)Earn a profit on every unit of output produced.
• C)Set price equal to the ATC of production.
• D)Incur a loss on every unit of output produced.

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Definitions:

Efficient Level

The optimal point of production or operation where resources are utilized in the most effective manner, without waste, to achieve a desired outcome or maximized benefit.

External Costs

Costs caused by a business activity that are not borne by the business itself, but by other people or the environment.

External Benefits

Benefits from an economic activity experienced by parties not directly involved in the transaction, often leading to positive spillovers in society.

Subsidizing Production

The act of providing financial support to companies or industries to reduce the cost of producing goods or services, often to encourage production or lower prices for consumers.