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)$0.06; 1 million
B)$0.07; 1.5 million
C)$0.09; 1.4 million
D)$0.11; 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)$0.06; 1 million 
B)$0.07; 1.5 million 
C)$0.09; 1.4 million 
D)$0.11; 1 million 
E)$0.12; 1 million

Quizplus · Accepted Answer

Under average-cost pricing, the firm is required to set price equal to its average total cost at the profit-maximizing quantity. In the diagram, this occurs where the marginal cost curve intersects the ATC curve. This is at a price of $0.09 per kwh and an output of 1.4 million kwh per day. Therefore, the correct choice is (C).

The Diagram Below Shows Cost and Revenue Curves for a Natural