If an Average Cost Pricing Rule Is Imposed on the Natural

question 343

Multiple Choice

If an average cost pricing rule is imposed on the natural monopoly in the figure above, then the firm will

• A) incur an economic loss.
• B) make zero economic profit, that is, its owners make a normal profit.
• C) make an economic profit of $4 million.
• D) make an economic profit of $9 million.

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Definitions:

Total Share

Refers to the total number of shares of stock that are owned by shareholders, including both public investors and private insiders or executives.

Net Income

The net income of a business following the subtraction of all costs and taxes from its gross earnings.

Income Distribution

The allocation of a company's net income among shareholders in the form of dividends and retained earnings within the company.

Capital Balance

Represents the amount of capital contributed by investors or owners, plus retained earnings minus any distributions or withdrawals.