If a Natural Monopoly Is Regulated Using the Marginal Cost

question 380

Essay

If a natural monopoly is regulated using the marginal cost pricing rule,how will that affect prices,outputs,profits,and the distribution of surpluses? What are the pros and cons to this method of regulation?

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Definitions:

FIFO Method

An inventory valuation method that assumes the first items placed in inventory are the first sold, hence "First In, First Out."

Cost of Goods

The total direct costs attributable to the production or purchase of goods sold by a company, including materials and labor.

Completed and Transferred

A term used in manufacturing to describe goods that have been finished and moved to the next stage of production or to inventory.

Cost of Production Report

A cost of production report summarizes the production and cost activity within a manufacturing department for a specific period, tracking the flow of units and the accumulated costs.