The Reason a Profit-Maximizing Natural Monopolist Cannot Set Price Equal

question 164

Multiple Choice

The reason a profit-maximizing natural monopolist cannot set price equal to marginal cost is that it would:

• A) then be forced to produce more than it could sell.
• B) then be forced to produce more than the socially optimal level of output.
• C) earn excessive profits, which would attract new firms into the market.
• D) suffer losses since price would be less than average cost.

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Definitions:

Production Orders

Instructions or commands to start the manufacture of a certain quantity of a product within a specified timeframe.

Activity Rate

The rate determining the cost allocation in activity-based costing, which distributes overhead expenses to products or services according to particular activities.

Activity-Based Costing

A pricing approach that determines and allocates the expenses of each activity within an organization to all products and services based on their actual usage.

Labor-Related

Pertains to issues, costs, or statistics connected with the workforce or employees of a company.