Regulation of a Natural Monopoly Will Maximize the Sum of Consumer

question 63

Multiple Choice

Regulation of a natural monopoly will maximize the sum of consumer surplus and producer surplus if the firm is regulated with

• A) an average cost pricing rule.
• B) a marginal cost pricing rule.
• C) rate of return regulation.
• D) All of the above answers are correct.

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Definitions:

Alternative

An option or choice that serves as a substitute to a decision or course of action.

Intermediate Product

Goods that are produced and used as inputs in the production of other goods, rather than being sold directly to consumers.

Processed Further

A decision in cost accounting regarding whether or not to continue adding value to a product beyond the split-off point.

Differential Revenue

The difference in revenue expected from two different business decisions or scenarios, often considered when evaluating options.