The figure above shows a natural monopoly.
-In the figure above,if the firm is regulated using an average cost pricing rule,the economic loss created is equal to the area of
A) ABG.
B) BEFG.
C) BCFG.
D) BCE.
E) None of the above because there is no economic loss created.

Question

The figure above shows a natural monopoly.
-In the figure above,if the firm is regulated using an average cost pricing rule,the economic loss created is equal to the area of
A) ABG. 
B) BEFG. 
C) BCFG. 
D) BCE. 
E) None of the above because there is no economic loss created.

Quizplus · Accepted Answer

Under average cost pricing, a firm sets the price equal to the average cost at the output level. This ensures the firm covers all its costs, including normal profit, but does not create an economic loss. Therefore, there is no economic loss created under average cost pricing.

The Figure Above Shows a Natural Monopoly