Consider a Natural Monopoly That Is Producing an Output Level

question 112

Multiple Choice

Consider a natural monopoly that is producing an output level such that it is experiencing decreasing returns to scale.If government policy requires the firm to set price equal to marginal cost,

• A)the outcome will be allocatively efficient and the firm will be earning profits.
• B)the outcome will be allocatively inefficient and the firm will be earning profits.
• C)the outcome will be allocatively efficient and the firm will be incurring losses.
• D)the outcome will be allocatively inefficient and the firm will be incurring losses.
• E)the outcome will be allocatively efficient and the firm will be earning zero profits.

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Definitions:

Profitability

The capacity of a business or activity to generate earnings over its expenses, indicating financial health and success.

Organizing Data

The process of arranging and categorizing information to make it more understandable and usable.

Elimination of Alternatives

The process of systematically removing options to narrow down choices to the best possible solution.

Problem-Solution

A method or strategy that involves identifying a problem and finding one or more solutions to address it.