Suppose the Local Government Is Considering Using Marginal Cost Pricing

question 162

Multiple Choice

Suppose the local government is considering using marginal cost pricing to set rates for a cable TV company.Which of the following arguments supports marginal cost pricing?

• A)Marginal cost pricing gives the monopoly an economic profit and a reason to stay in business.
• B)Marginal cost pricing gives the firm a normal economic profit and a reason to stay in business.
• C)Marginal cost pricing results in allocative efficiency.
• D)Unlike firms adopting average cost pricing, firms using marginal cost pricing do not require subsidies, which can be costly.
• E)Unlike average cost pricing, marginal cost pricing enables monopolies to stay in business in the long run.

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