If a Natural Monopoly Is Told to Set Price Equal

question 286

Multiple Choice

If a natural monopoly is told to set price equal to average cost,then the firm

• A) is not able to set marginal revenue equal to marginal cost.
• B) automatically also sets price equal to marginal cost.
• C) will make a substantial economic profit.
• D) will incur an economic loss.
• E) sets a price that is lower than its marginal cost.

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Definitions:

Underapplied

A situation where the allocated indirect costs are less than the actual indirect costs incurred.

Overapplied

A situation where the overhead costs applied to products or services exceed the actual overhead costs incurred.

Adjusted Cost of Goods Sold

The cost of goods sold after adjustments for changes in inventory levels and other factors affecting cost of goods sold.

Year

A period of 365 or 366 days, in the Gregorian Calendar, divided into 12 months, used for calculating time.