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. In this case, economic profits are equal to
A) $90 000.
B) - $28 000.
C) - $15 000.
D) $0.
E) - $50 000.

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. In this case, economic profits are equal to
A) $90 000. 
B) - $28 000. 
C) - $15 000. 
D) $0. 
E) - $50 000.

Quizplus · Accepted Answer

Under marginal-cost pricing, the firm sets price equal to marginal cost. This often results in a price lower than average total cost, leading to a loss, which in this case is -$15,000.

The Diagram Below Shows Cost and Revenue Curves for a Natural