-In the above figure, if the natural monopoly is regulated using a marginal cost pricing rule, then the firm will
A) produce 8 million units and make an economic profit of $24 million.
B) produce 12 million units and make zero economic profit.
C) produce 16 million units and incur an economic loss of $64 million.
D) produce 16 million units and make zero economic profit.

Question

-In the above figure, if the natural monopoly is regulated using a marginal cost pricing rule, then the firm will
A) produce 8 million units and make an economic profit of $24 million. 
B) produce 12 million units and make zero economic profit. 
C) produce 16 million units and incur an economic loss of $64 million. 
D) produce 16 million units and make zero economic profit.

Quizplus · Accepted Answer

Under marginal cost pricing, the firm produces where price equals marginal cost, which often leads to an economic loss for a natural monopoly because average total cost is higher than marginal cost at that output level.

-In the Above Figure, If the Natural Monopoly Is Regulated