If Government Regulation Sets the Maximum Price for a Natural

question 17

Multiple Choice

If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

• A)earn economic losses.
• B)earn economic profits.
• C)earn zero economic profits.
• D)produce a lower quantity of output than is socially optimal.

---

Definitions:

Demand Function

A mathematical representation of the relationship between the quantity demanded of a good and its price, along with other factors.

Undercoverage

A bias in statistical sampling where some members of the intended population are inadequately represented.

Supply and Demand

A fundamental economic model that describes the relationship between the availability of a product or service and the desire for it among consumers.

Markup Percentage

The ratio of profit added to the cost price of goods to determine the selling price, expressed as a percentage of the cost.