If a monopoly is subject to average cost pricing, it will:
A)earn a normal rate of return.
B)produce the socially efficient level of output.
C)suffer economic losses without a subsidy.
D)earn positive economic profits.
E)produce more than the socially efficient level of output.

Question

Quizplus · Accepted Answer

When a monopoly is subject to average cost pricing, it sets its price equal to its average costs, allowing it to earn a normal rate of return but not positive economic profits. This regulatory approach prevents the monopoly from exploiting its market power to earn excessive profits.

If a Monopoly Is Subject to Average Cost Pricing, It