If there is just one producer in an industry where the average total cost curve declines throughout the output range up to where it intersects the industry demand curve:
A)the industry will be a natural monopoly.
B)charging a price equal to marginal cost would entail economic losses for the producer.
C)charging a price equal to average cost would entail a welfare cost.
D)if the producer was left free to choose its profit maximizing price, less than the efficient amount would be produced.
E)all of the above would be true.

Question

Quizplus · Accepted Answer

The industry is a natural monopoly because the average total cost declines over the entire output range. Charging a price equal to marginal cost would lead to losses since the average cost is higher. Charging a price equal to average cost would result in a welfare cost due to the lack of marginal cost pricing. If the producer sets a profit-maximizing price, it would produce less than the socially efficient quantity.

If There Is Just One Producer in an Industry Where