When Regulating a Natural Monopoly, Average Cost Pricing Is Usually

question 45

Multiple Choice

When regulating a natural monopoly, average cost pricing is usually used rather than marginal cost pricing because

• A) average cost pricing allows the firm to earn a normal rate of return on investment, while marginal cost pricing leads to economic losses.
• B) average cost pricing is more economically efficient than marginal cost pricing.
• C) average cost pricing leads to lower profits than marginal cost pricing.
• D) average cost pricing leads to a lower market price than marginal cost pricing.

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Definitions:

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