Consider the Case of a Natural Monopoly with Falling Long-Run

question 68

Multiple Choice

Consider the case of a natural monopoly with falling long-run average costs.If regulation sets the price equal to marginal cost,then

• A)the firm would operate at a loss and eventually go out of business.
• B)shortages would result.
• C)the demand curve would shift to the left.
• D)the firm would earn economic profits.
• E)the outcome would be allocatively inefficient.

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