-Suppose a firm is considering entering a market where it would face the demand and cost conditions shown in Figure 10-13.Which of the following statements is correct?
A)The firm should produce output level Q* and charge a single price equal to G.
B)The firm should produce output level Q* and charge a single price equal to F.
C)The firm should produce output level Q* and charge a single price equal to H.
D)The firm should produce output level Q** and charge a single price equal to I.
E)The firm is a natural monopolist that will suffer a long-run economic loss if it charges a single price.

Question

-Suppose a firm is considering entering a market where it would face the demand and cost conditions shown in Figure 10-13.Which of the following statements is correct?
A)The firm should produce output level Q* and charge a single price equal to G. 
B)The firm should produce output level Q* and charge a single price equal to F. 
C)The firm should produce output level Q* and charge a single price equal to H. 
D)The firm should produce output level Q** and charge a single price equal to I. 
E)The firm is a natural monopolist that will suffer a long-run economic loss if it charges a single price.

Quizplus · Accepted Answer

The firm is a natural monopolist, meaning it has high fixed costs and decreasing average costs over the relevant range of output. If it charges a single price, it may not cover its average total costs, leading to a long-run economic loss.

-Suppose a Firm Is Considering Entering a Market Where It