Choose the Statement That Best Describes the Dilemma Facing the Regulator

question 26

Multiple Choice

Choose the statement that best describes the dilemma facing the regulator of a natural monopoly.

• A) marginal- cost pricing leads to profit or losses; average- cost pricing results in allocative inefficiency
• B) there is no dilemma
• C) marginal- cost pricing will result in productive and allocative inefficiency; average- cost pricing will not
• D) both kinds of regulation have the same implications for allocative efficiency.
• E) marginal- cost pricing will result in allocative inefficiency; average- cost pricing leads to profits or losses

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Definitions:

Expected Cost

The anticipated expense associated with a particular action, considering all possible outcomes weighted by their probabilities.

Revenue Data

Information related to the income generated from normal business operations, such as sales of goods or services.

Competitive Price-Taker

A market participant who accepts the prevailing market price as given and has no influence over it due to the high level of competition.

Profit

The financial gain attained after subtracting total expenses from total revenues.