Consider a public utility that is a natural monopoly with falling long-run average costs.If a regulatory agency ordered this firm to price all of its output at marginal cost,then the firm
A)would lose money unless it is subsidized.
B)could incur profits or losses depending on the position of the demand curve and the LRAC curve.
C)would earn profits since the demand curve is perfectly inelastic.
D)would incur losses since the demand curve is perfectly elastic.
E)would have to shut down.

Question

Quizplus · Accepted Answer

Since the firm is a natural monopoly with falling long-run average costs, pricing at marginal cost would be below average cost, leading to losses unless subsidized.

Consider a Public Utility That Is a Natural Monopoly with Falling