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 policy of marginal- cost pricing.The resulting price and output would be per kwh and kwh per day.

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 policy of marginal- cost pricing.The resulting price and output would be per kwh and kwh per day.

Quizplus · Accepted Answer

Under marginal-cost pricing, the price is set at the point where the marginal cost curve intersects with the demand curve. In this case, that intersection point is at a price of $0.07 per kwh and a quantity of 1.5 million kwh per day. This is the efficient level of output for the natural monopoly, as it maximizes consumer surplus and ensures that the firm earns a normal rate of return. Therefore, the correct answer is (C) $0.07; 1.5 million.

The Diagram Below Shows Cost and Revenue Curves for a Natural