Consider a Natural Monopoly That Has Declining ATC Over the Entire

question 20

Multiple Choice

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

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Definitions:

Plant Assets

Long-term tangible assets used in the operation of a business that are not intended for resale, such as machinery, buildings, and land.

Year Ended

Refers to the end of a fiscal year, when a company completes its annual accounting period.

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption or wear and tear.

Estimates Change

Refers to the revision of previous financial estimates based on new information or insights, impacting forecasts and budget plans.