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 average- cost pricing. The resulting price and output would be per kwh and kwh per day.
A) $0.11; 1 million
B) $0.09; 1.4 million
C) $0.07; 1.5 million
D) $0.06; 1 million
E) $0.12; 1 million

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 average- cost pricing. The resulting price and output would be per kwh and kwh per day.
A) $0.11; 1 million 
B) $0.09; 1.4 million 
C) $0.07; 1.5 million 
D) $0.06; 1 million 
E) $0.12; 1 million

Quizplus · Accepted Answer

Average-cost pricing sets the price equal to the average cost, allowing the firm to break even. In this scenario, the price of $0.09 and output of 1.4 million kwh per day would align with the average cost, ensuring no economic profit or loss.

The Diagram Below Shows Cost and Revenue Curves for a Natural