Suppose a Monopolist Has Costs Such That When Output Is

question 33

Multiple Choice

Suppose a monopolist has costs such that when output is 500 units per hour, average costs are $3. If the monopolist is regulated by a policy of average-cost pricing, the monopolist will charge a price of

• A) $3.
• B) $3 only if the quantity demanded is 500 units per hour at a price of $3.
• C) $3 only if the quantity demanded is greater than 500 units at a price of $3.
• D) $3 only if the quantity demanded is less than 500 units per hour at a price of $3.

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Definitions:

Standard Activity

A benchmark or base level of activity used for planning, measuring, and controlling performance.

Quantity Standard

A preset benchmark that specifies the expected amount or number of units to be used or produced under normal conditions.

Variable Manufacturing Overhead

The portion of manufacturing overhead costs that varies with the level of production output, such as utility costs or indirect materials.

Labor Rate Variance

The difference between the actual hourly labor rate and the standard rate, multiplied by the number of hours worked during the period.