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
-When regulating a natural monopoly, government officials face a dilemma that:
A)the efficient price may not allow the firm to break even.
B)the efficient price may lead to an inefficiently high level of output.
C)the efficient price leads to an output level that is too low.
D)the efficient price may force the firm to shut-down.
E)long-run average costs are constantly increasing.

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
-When regulating a natural monopoly, government officials face a dilemma that:
A)the efficient price may not allow the firm to break even. 
B)the efficient price may lead to an inefficiently high level of output. 
C)the efficient price leads to an output level that is too low. 
D)the efficient price may force the firm to shut-down. 
E)long-run average costs are constantly increasing.

Quizplus · Accepted Answer

The efficient price, which is set equal to marginal cost, may not cover the firm's average total costs, leading to losses and preventing the firm from breaking even.

The Figure Below Shows Revenue and Cost Curves of a Natural