If We Compare Regulating a Natural Monopoly Using a Marginal

question 123

Multiple Choice

If we compare regulating a natural monopoly using a marginal cost pricing rule to using an average cost pricing rule,we see that output is

• A) greater with marginal cost pricing, but average cost pricing allows for costs to be covered.
• B) the same under both cases, but the profit is greater with average cost pricing.
• C) greater under average cost pricing, but profits are greater with marginal cost pricing.
• D) the same but profits are greater with marginal cost pricing.
• E) greater with marginal cost pricing, and the firm's profit is larger with marginal cost pricing.

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Definitions:

Discounted

The process of determining the present value of a future amount by applying a discount rate.

Simple Interest

Simple interest is a way of calculating interest where the amount earned or paid is based on the original principal and does not compound.

Face Value

The nominal or dollar value printed on a security or financial instrument, such as a bond or stock certificate.

Interest Rate

The percentage of a loan that is incurred as interest by the borrower, usually represented as an annual percentage of the outstanding loan amount.