In the Long Run,the Imposition of Average- Cost Pricing in Natural

question 94

Multiple Choice

In the long run,the imposition of average- cost pricing in natural monopolies,such as Manitoba Hydro and New Brunswick Power,would generally lead to

• A)productive efficiency.
• B)distorted investment decisions.
• C)allocative efficiency.
• D)a reduction in the output by these firms.
• E)both allocative efficiency and productive efficiency.

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Definitions:

Inputs

The resources such as labor, materials, and capital used in the production process.

MRTS

Marginal Rate of Technical Substitution, indicating how much of one input can be reduced when one more unit of another input is used, keeping output constant.

MRTS

Marginal Rate of Technical Substitution; the rate at which one input can be reduced for every increase in another input while maintaining the same level of output.

Capital

Financial assets or the financial value of assets, such as cash and other tangible assets, used in operations to generate income or profit.