When All Prices Are Set Equal to Marginal Costs

question 22

Multiple Choice

When all prices are set equal to marginal costs,

• A)consumers buy more than they should.
• B)consumers will get less utility.
• C)markets are giving correct signals to consumers.
• D)producers make excessive profits.

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Definitions:

Economic Profit

The gap between a company's overall earnings and all its expenses, comprising both direct and indirect costs.

Pure Monopoly

A market structure where a single firm controls the entire supply of a product or service, with no close substitutes.

Barriers to Entry

Obstacles that make it difficult for new competitors to enter a market, such as high startup costs or complex regulations.

Natural Monopoly

A situation in the market where due to high initial costs and substantial economies of scale, a single firm can supply a product or service at a lower cost than any potential competitor, leading to a market dominated by one supplier.