The figure above shows a natural monopoly regulated using a marginal cost pricing rule.
-In the figure above,an
A) efficient output results, but the firm incurs a loss per household which must be subsidized in some way.
B) inefficient output results, though the firm covers its costs.
C) efficient output results, though marginal costs exceed average total costs.
D) inefficient output results because the firm cannot cover its costs.
E) efficient output results because consumer surplus is maximized.

Question

The figure above shows a natural monopoly regulated using a marginal cost pricing rule.
-In the figure above,an
A) efficient output results, but the firm incurs a loss per household which must be subsidized in some way. 
B) inefficient output results, though the firm covers its costs. 
C) efficient output results, though marginal costs exceed average total costs. 
D) inefficient output results because the firm cannot cover its costs. 
E) efficient output results because consumer surplus is maximized.

Quizplus · Accepted Answer

In the context of the figure, an efficient output results when the firm produces where marginal cost equals marginal benefit, but the firm incurs a loss per household, indicating that the price is below average total cost, necessitating a subsidy.

The Figure Above Shows a Natural Monopoly Regulated Using a Marginal