Consider a Public Utility That Is a Natural Monopoly with Falling

question 70

Multiple Choice

Consider a public utility that is a natural monopoly with falling long-run average costs.If a regulatory agency ordered this firm to price all of its output at marginal cost,then the firm

• A)would lose money unless it is subsidized.
• B)could incur profits or losses depending on the position of the demand curve and the LRAC curve.
• C)would earn profits since the demand curve is perfectly inelastic.
• D)would incur losses since the demand curve is perfectly elastic.
• E)would have to shut down.

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