FIGURE 12- 1 Consider Three Firms,A,B and C,all Producing Kilos

question 37

Multiple Choice

FIGURE 12- 1 Consider three firms,A,B and C,all producing kilos of potatoes (per year) in a perfectly competitive market.The diagrams below show marginal cost curves for each of the three firms.

-Consider a public utility that is a natural monopoly with falling long- run average costs.If a regulatory agency ordered this firm to price all of its output at marginal cost,then the firm

• A)would earn profits since the demand curve is perfectly inelastic.
• B)could incur profits or losses depending on the position of the demand curve and the LRAC curve.
• C)would lose money unless it is subsidized.
• D)would have to shut down.
• E)would incur losses since the demand curve is perfectly elastic.

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