If Average- Cost Pricing Is Imposed on a Falling- Cost

question 55

Multiple Choice

If average- cost pricing is imposed on a falling- cost natural monopoly, the result will be

• A) economic losses.
• B) zero economic profit.
• C) economic profits.
• D) exit from the industry in the short run.
• E) losses and exit from the industry in the long run.

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Definitions:

CPI

The Consumer Price Index tracks the average variation in prices that urban consumers pay for a selection of consumer goods and services over a period of time.

Escalating Inflation

A situation where the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, accelerates over a period.

CPI

The Consumer Price Index measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Purchasing Power

A measure of the value of currency, expressed in terms of the quantity of goods or services that one unit of money can buy.