The Problem with Adopting a Fair-Return Pricing Policy for a Natural

question 7

Multiple Choice

The problem with adopting a fair-return pricing policy for a natural monopoly is that

• A) economic profits will be positive.
• B) economic profits will be negative.
• C) it is not productively efficient.
• D) it is not allocatively efficient.

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Definitions:

Existing Businesses

Companies or enterprises that have been operational for a period of time and are not newly established.

Franchises

Business models where individuals can buy the rights to open and operate a location of a larger company.

Capital Intensive

A characteristic of businesses that require large investments in capital assets, like machinery and equipment, to produce goods or services.

Labor Intensive

Describes a process or industry that requires a large amount of labor to produce its goods or services, compared to the amount of capital used.