Choose the Statement That Best Describes the Dilemma Facing the Regulator

question 116

Multiple Choice

Choose the statement that best describes the dilemma facing the regulator of a natural monopoly.

• A)Marginal-cost pricing leads to profit or losses; average-cost pricing results in allocative inefficiency.
• B)Marginal-cost pricing will result in allocative inefficiency; average-cost pricing leads to profits or losses.
• C)Marginal-cost pricing will result in productive and allocative inefficiency; average-cost pricing will not.
• D)Both kinds of regulation have the same implications for allocative efficiency.
• E)There is no dilemma.

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Definitions:

Produced Units

The total quantity of completed goods produced by a company over a given time frame.

Indirect Manufacturing Cost

Expenses related to production that are not directly tied to a specific product, such as maintenance and utilities.

Produced Units

The total number of units manufactured within a specific period.

Direct Manufacturing Cost

The total of direct materials and direct labor costs that are tied directly to the production process of a product.