-Use the Above Figure

question 269

Multiple Choice

-Use the above figure. Suppose that a regulatory agency requires this natural monopolist to engage in marginal cost pricing. This would lead to

• A) losses, which would drive the monopolist out of business in the long run.
• B) profits, which would encourage new producers to enter the industry in the long run.
• C) profits, but new firms cannot enter the industry in the long run due to high barriers to entry.
• D) losses, which would encourage the monopolist to lower costs in the long run.

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Definitions:

Materials Costs

The expense incurred for raw materials that are transformed into finished products in the manufacturing process.

Equivalent Units

A term in process costing used to convert partially completed units into a number of complete units for costing purposes.

Step-Down Method

An allocation method used in accounting to distribute costs among departments or products, starting with the department that provides the most services to others.

Service Department Costs

Expenses related to departments that support the production process but do not directly engage in manufacturing.