Consider the Case of a Natural Monopoly with Falling Average

question 77

Multiple Choice

Consider the case of a natural monopoly with falling average total costs. If regulation sets the price equal to marginal cost, then

• A) the firm would earn economic profits.
• B) the outcome would be allocatively inefficient.
• C) shortages would result.
• D) the firm would operate at a loss and eventually go out of business.
• E) the demand curve would shift to the left.