A Disadvantage of Requiring a Monopoly to Set a Price

question 111

Multiple Choice

A disadvantage of requiring a monopoly to set a price equal to average total cost is that firms may:

• A) lose money.
• B) not have an incentive to minimize cost.
• C) find that costs are too high.
• D) find that its profits will escalate.

---

Definitions:

U.S. GAAP

The Generally Accepted Accounting Principles in the United States, a framework of accounting standards, principles, and procedures used in the preparation of financial statements.

GAAP

A set of widely adhered to accounting norms and standards utilized for financial reporting, known as Generally Accepted Accounting Principles.

Capital Lease

A lease agreement that grants a lessee the rights similar to ownership of the asset, typically for a considerable period of the asset's life.

Operating Lease

A leasing agreement allowing the use of an asset without ownership, typically with shorter terms than a finance lease.