The figure below shows revenue and cost curves of a natural monopoly firm.Figure 14.1

In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
-Which of the following calculations is necessary to determine whether a regulation should be implemented?
A)Marginal cost-marginal revenue calculations
B)Cost effectiveness calculations
C)Total cost-total revenue calculations
D)Cost minimization calculations
E)Cost-benefit calculations

Question

The figure below shows revenue and cost curves of a natural monopoly firm.Figure 14.1
​
  In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
-Which of the following calculations is necessary to determine whether a regulation should be implemented?
A)Marginal cost-marginal revenue calculations 
B)Cost effectiveness calculations 
C)Total cost-total revenue calculations 
D)Cost minimization calculations 
E)Cost-benefit calculations

Quizplus · Accepted Answer

To determine whether a regulation should be implemented for a natural monopoly, a cost-benefit analysis is necessary. This analysis would consider the costs of implementing the regulation (such as the cost of monitoring and enforcing the regulation) and the benefits (such as the potential to increase competition and reduce prices). Marginal cost-marginal revenue calculations, cost effectiveness calculations, total cost-total revenue calculations, and cost minimization calculations may be useful in determining a firm's profit-maximizing level of output, but they do not necessarily inform whether regulation is necessary or beneficial.

The Figure Below Shows Revenue and Cost Curves of a Natural