Which of the Following Explains Why the Marginal Cost Pricing

question 60

Multiple Choice

Which of the following explains why the marginal cost pricing rule results in an economic loss for a natural monopoly?

• A) The demand curve is downward sloping, therefore price falls as quantity increases.
• B) The MC is constant and equal to price.
• C) The ATC curve is downward sloping throughout the relevant range, therefore the MC is lower than the ATC.
• D) The firm's MR is always less than its price.
• E) Because output is determined by setting MC equal to the price, consumer surplus is maximised.

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Definitions:

Overhead Costs

Expenses required to run a business that are not directly related to the production of goods or services, such as rent, utilities, and administrative salaries.

Direct Labor Cost

The expense associated with the work performed by employees directly involved in the manufacturing process of products.

Manufacturing Overhead

All manufacturing costs that are not directly associated with the production of goods, including costs related to indirect labor, materials, and facility.

Direct Materials Costs

The expense incurred for raw materials that are directly traceable and allocable to a finished product.