Consider a Natural Monopoly That Is Producing an Output Level

question 59

Multiple Choice

Consider a natural monopoly that is producing an output level such that it is experiencing decreasing returns to scale.If government policy requires the firm to set price equal to marginal cost,

• A)the outcome will be allocatively inefficient and the firm will be incurring losses.
• B)the outcome will be allocatively efficient and the firm will be earning zero profits.
• C)the outcome will be allocatively efficient and the firm will be earning profits.
• D)the outcome will be allocatively efficient and the firm will be incurring losses.
• E)the outcome will be allocatively inefficient and the firm will be earning profits.

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