When a Regulatory Agency Uses Marginal Cost Pricing to Regulate

question 29

Multiple Choice

When a regulatory agency uses marginal cost pricing to regulate a monopolist,

• A) price will exceed marginal cost.
• B) production costs will probably exceed the total revenues of the monopolist.
• C) marginal cost will equal average total cost.
• D) social welfare could be improved if average cost pricing was used instead

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Definitions:

Fiscal Year Ends

The completion of a one-year, or 12-month, accounting period after which a company determines its financial performance.

Net Income

Total earnings of a business, arrived at by subtracting all expenses and taxes from its overall income.

Dividends

Payments made to shareholders out of a corporation's profits, reflecting the company's earnings and financial health.

Common Stock

A type of equity security that represents ownership in a company, with rights to vote and share in dividends.