Exhibit 15-4 If it is allowed to earn only a normal profit, the regulated natural monopoly in Exhibit 15-4 will set price equal to
A)a
B)b
C)c
D)f

Question

Exhibit 15-4  If it is allowed to earn only a normal profit, the regulated natural monopoly in Exhibit 15-4 will set price equal to
A)a 
B)b 
C)c 
D)f

Quizplus · Accepted Answer

Under normal profits, the regulated natural monopoly will set price equal to its average total cost (ATC), which is represented by point C in the diagram. At this price, its economic profit will be zero, as it is earning only a normal profit. Any higher price would result in consumers switching to alternative products or services, while any lower price would not cover the firm's costs. Therefore, the best choice in this case is option C.

Exhibit 15-4 If It Is Allowed to Earn Only