Consider a Natural Monopoly That Has Declining LRAC Over the Entire

question 107

Multiple Choice

Consider a natural monopoly that has declining LRAC over the entire range of the market demand curve.If it is regulated and required to charge a price that is equal to MC,the resulting level of output is

• A)greater than the allocatively efficient level,but losses occur.
• B)allocatively efficient,and profit is earned.
• C)less than the allocatively efficient level,and profit is zero.
• D)less than the allocatively efficient level,but losses occur.
• E)allocatively efficient,but the firm must be paid a subsidy or it will eventually go out of business.

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