Question

# 1. Marginal cost pricing means that a firm charges Group of answer choices A price that...

1.

Marginal cost pricing means that a firm charges

A price that is marginally lower than the average total cost of production.

Any price as long as average total cost is greater than marginal cost.

A price that is marginally higher than the average total cost of production

A price that is equal to the marginal cost of production.

2.

If the government wants a natural monopolist to achieve allocative efficiency, the government should

Ensure that the firm produces at full capacity.

Use price ceilings so the firm will earn a normal profit.

Regulate the firm so that it produces the output level at which economic profit is zero.

Subsidize the firm and require marginal cost pricing.

3.

An unregulated natural monopoly can lead to

Marginal cost pricing.

Loss of economies of scale.

Higher prices for consumers.

An optimal mix of output.

4.

If a natural monopoly is forced to set a price consistent with price efficiency, it will

Earn a profit on every unit of output produced.

Set price above marginal cost.

Incur a loss on every unit of output produced.

Set price equal to the ATC of production.

5.

The best way to address a natural monopoly without dismantling the economies of scale is

Laissez faire.

Antitrust.

Deregulation.

Regulation.

1) Solution: price that is equal to the marginal cost of production

Explanation: Marginal cost pricing means that the producer would produces up to the output where for a given market price equals the marginal cost of production

2) Solution: Subsidize the firm and require marginal cost pricing

Explanation: to achieve allocative efficiency for a natural monopolist the government would subsidize the firm and need marginal cost pricing

3) Solution: Higher prices for consumers

Explanation: The unregulated natural monopoly would charge consumer a high price

4) Solution: Incur a loss on every unit of output produced

Explanation: To set a consistent price with price efficiency in natural monopoly the producer incur a loss on every unit of produced output

5) Solution: Regulation

Explanation: The best approach for a natural monopoly without dismantling the economies of scale would be a proper regulation

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