If a Natural Monopolist Were Forced to Set Price Equal

question 73

Multiple Choice

If a natural monopolist were forced to set price equal to average cost, it would:

• A) earn a normal profit.
• B) suffer losses.
• C) earn excessive profit.
• D) be forced to produce more than the socially optimal level of output.

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Definitions:

Goods Or Services

Tangible products (goods) and intangible offerings (services) that fulfill the needs or desires of consumers.

Fixed Costs

Costs that do not vary with the level of output or production, such as rent, salaries, and insurance premiums.

Monopolistically Competitive

Refers to a market structure where many firms sell similar, but not identical, products, allowing for some degree of market power and differentiation.

Profit-Maximizing Output

The level of production at which a firm achieves the highest possible profit, where marginal revenue equals marginal cost.