What Is the Drawback of Forcing a Natural Monopolist to Use

question 125

Multiple Choice

What is the drawback of forcing a natural monopolist to use a marginal cost pricing rule?

• A) No deadweight loss is eliminated.
• B) The firm will incur an economic loss.
• C) The gain in consumer surplus will be less than the loss in producer surplus, thus creating additional deadweight loss.
• D) None of the above answers is correct.

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Definitions:

Marginal Cost Curve

A graphical representation showing how the cost of producing one additional unit of a good varies as production increases.

Industry Supply

The total amount of a product or service that all producers in a market are willing and able to sell at a given price.

Price Floor

A government-imposed limit on how low a price can be charged, usually above the equilibrium price, which can prevent the market from clearing.

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or resource, usually intended to protect consumers from prices deemed excessively high.