If Regulators Force a Natural Monopoly to Price as a Perfectly

question 134

Multiple Choice

If regulators force a natural monopoly to price as a perfectly competitive firm would, the natural monopolist

• A) will earn higher economic profits.
• B) will earn an economic loss.
• C) will expand its output.
• D) will experience a rise in long-term average costs.

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Definitions:

Fixed Manufacturing Overhead

Indirect production costs that remain constant regardless of the level of production, such as rent, property taxes, and insurance.

Variances

The differences between planned or expected financial outcomes and the actual financial outcomes.

Fixed Overhead

The portion of overhead costs that remains constant regardless of the level of production or business activity.

Direct Labor

The labor costs directly tied to the production of goods or services, such as wages paid to employees who physically produce a product.