Use the following table to answer the question : Table 15-3: shows the average cost [AC],marginal cost [MC],and demand [D] curves for a natural monopoly;Qi denotes quantity and Pi denotes price.
-In Figure 15-3,if the monopoly is forced to use the average-cost pricing policy,it would:
A)produce Q2 at a price P3 and make zero economic profit.
B)produce Q3 at a price P4 and make positive economic profit.
C)produce Q1 at a price P1 and make zero economic profit.
D)produce Q2 at a price P3 and make positive economic profit.

Question

Use the following table to answer the question : Table 15-3: shows the average cost [AC],marginal cost [MC],and demand [D] curves for a natural monopoly;Qi denotes quantity and Pi denotes price. 
-In Figure 15-3,if the monopoly is forced to use the average-cost pricing policy,it would:
A)produce Q2 at a price P3 and make zero economic profit. 
B)produce Q3 at a price P4 and make positive economic profit. 
C)produce Q1 at a price P1 and make zero economic profit. 
D)produce Q2 at a price P3 and make positive economic profit.

Quizplus · Accepted Answer

Average-cost pricing occurs when a monopoly charges a price equal to its average cost of production. In Figure 15-3, this means the monopoly would produce the quantity where the AC curve intersects with the demand curve, which is Q1 at a price of P1. At this quantity and price, the monopoly would make zero economic profit. Therefore, the correct answer is C – produce Q1 at a price P1 and make zero economic profit.

Use the Following Table to Answer the Question : Table