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Describe the two problems that arise when regulators impose marginal-cost pricing on a natural monopoly.
Fixed Manufacturing Overhead
Costs that do not vary with the level of production or sales, such as salaries of production supervisors and depreciation of factory equipment.
Direct Labor Costs
Expenses related to labor that is directly involved in the production of goods or the provision of services.
Predetermined Overhead Rate
An estimated rate used to assign manufacturing overhead costs to products, calculated before the accounting period starts.
Standard Cost Variances
Differences between the estimated costs to produce a good or service and the actual costs incurred.
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