Setting Price Equal to Marginal Cost in a Natural Monopoly

question 138

Multiple Choice

Setting price equal to marginal cost in a natural monopoly will lead to

• A)excess profits for the firm.
• B)losses for the firm.
• C)zero profits for the firm.
• D)One cannot tell without further information.

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Definitions:

Below cost

describes selling a product at a price less than its production or acquisition cost, often to clear inventory or attract customers.

Consignment

involves goods being given to a third party to sell, with the owner retaining ownership until the items are sold.

Merchandise

Goods that are bought and sold in the course of business, typically in a retail or wholesale environment.

Inventory

The total amount of goods and materials a business has in stock, either for sale or used in production.