Figure: Total Surplus with a Regulated Natural Monopolist

question 23

Essay

Figure: Total Surplus with a Regulated Natural Monopolist
(Figure: Total Surplus with a Regulated Natural Monopoly) Look at the figure Total Surplus with a Regulated Natural Monopolist.In the figure, the natural monopoly:
A.would incur an economic profit if regulated to produce where price is less than marginal cost.
B.would incur an economic profit if regulated to charge a price equal to average total cost.
C.creates more consumer surplus than an unregulated monopolist if regulated to produce either where price equals marginal cost or price equals average total cost.
D.creates more consumer surplus than an unregulated monopolist if regulated to produce where price is above the average total cost.

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Definitions:

Net Operating Income

Earnings from a firm's principal operations, not including interest and tax deductions.

Common Fixed Expenses

Overhead costs that are not directly tied to production or sales volume, including rent, salaries, and insurance, shared across departments or product lines.

Period Cost

Costs that are expensed in the period in which they are incurred, typically including selling, administrative, and other non-production costs.

Net Operating Income

A financial metric that calculates a company's profitability by subtracting operating expenses from its operating revenues.