To Avoid Subsidies, the Government Should Cap the Price for a Natural

question 57

Multiple Choice

To avoid subsidies, the government should cap the price for a natural monopoly at its:

• A)marginal cost.
• B)average total cost.
• C)average variable cost.
• D)fixed cost.

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Definitions:

Utility Function

A mathematical representation of how different combinations of goods or services generate levels of happiness or satisfaction to the consumer.

Utility

A measure of the satisfaction or happiness that a person derives from consuming goods and services.

Marginal Rate

Refers to the rate at which one quantity changes with respect to a change in another, commonly used in economics to describe the marginal rate of substitution or marginal rate of transformation.

Indifference Map

A collection of indifference curves that graphically represent a consumer's preferences across different combinations of two goods.