If a Natural Monopoly Is Regulated Using

question 236

Multiple Choice

If a natural monopoly is regulated using

• A) a marginal cost pricing rule, the firm maximizes its profit.
• B) an average cost pricing rule, the firm incurs an economic loss.
• C) a total cost pricing rule, the firm will exit the industry.
• D) a marginal cost pricing rule, the firm incurs an economic loss.
• E) an average cost pricing rule, the firm maximizes its profit.

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Definitions:

Minimum AVC

The lowest point on the Average Variable Cost curve, indicating the most efficient scale of production where variable costs per unit are minimized.

Economic Losses

Refers to the situation where total costs exceed total revenues, leading to a negative net income for a business.

Marginal Cost

The growth in overall costs resulting from the manufacture of one more unit of a good or service.

Economic Losses

Situations where total costs exceed total revenues, indicating that resources may be better utilized elsewhere.