If a Regulatory Agency Ordered a Public Utility (A Natural

question 40

Multiple Choice

If a regulatory agency ordered a public utility (a natural monopoly) to price all of its output at marginal cost, then the firm

• A) would incur losses since the demand curve is perfectly elastic.
• B) could incur profits or losses depending on the position of the demand curve and the ATC curve.
• C) would lose money unless it is subsidized.
• D) would have to shut down.
• E) would earn profits since the demand curve is perfectly inelastic.

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Definitions:

Experiment

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