The diagram below shows cost and revenue curves for a natural monopoly producing electricity.Price is dollars per kilowatt hour and quantity is kilowatt hours per day.
FIGURE 12- 7
-Refer to Figure 12- 7.Suppose this firm is being regulated using a pricing policy of average- cost pricing.In this case,economic profits are equal to

Question

The diagram below shows cost and revenue curves for a natural monopoly producing electricity.Price is dollars per kilowatt hour and quantity is kilowatt hours per day.
  FIGURE 12- 7
-Refer to Figure 12- 7.Suppose this firm is being regulated using a pricing policy of average- cost pricing.In this case,economic profits are equal to

Quizplus · Accepted Answer

Average-cost pricing sets the price equal to the average cost of production, in this case $0.06/kWh. At the quantity where the average cost curve intersects the demand curve (around 7000 kWh/day), the firm earns zero economic profits (total revenue equals total cost). Therefore, the answer is B, $0.

The Diagram Below Shows Cost and Revenue Curves for a Natural