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.

---

Definitions:

Economic Changes

Variations or shifts in the economic environment that can affect the performance and strategies of businesses.

Effective Income Tax Rate

The average percentage of their total income that individuals or corporations pay in taxes, reflecting the actual rate of taxation rather than the nominal tax rate.

Statutory Income Tax Rate

The prescribed rate by law that a company or individual pays on income, differing by country and sometimes by income level or source.

Tax Jurisdiction

The legal authority granted to a government entity to impose taxes on individuals, businesses, or transactions within a defined geographical area.