When government sets price equal to average total cost for a natural monopoly: price will also be equal to marginal cost economic profit is equal to zero. the outcome of the market is efficient since marginal benefit equals marginal cost. the firm will experience losses.
Added by Timothy J.
Close
Step 1
When the government sets the price equal to the average total cost for a natural monopoly, it means that the price charged by the monopoly is equal to the cost of producing each unit of output, including both fixed and variable costs. Show more…
Show all steps
Your feedback will help us improve your experience
Amman Zia and 50 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will a. earn economic profits. b. earn economic losses. c. earn zero economic profits. d. produce a lower quantity of output than is socially optimal.
Jennifer S.
If the government requires a natural monopoly to price at marginal cost, (there are no typo's in this question) Select one: a. producer surplus will increase because quantity supplied is greater. b. monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that good. c. more firms will be able to enter the market. d. monopoly firms will operate at a loss because P =MC. e. monopoly firms will operate at a loss because P =AC.
Andrew D.
Assume a firm's marginal costs are increasing at its current level of output: If a firm's marginal revenue is less than the marginal cost of producing the last unit of output chosen by the firm, then: Profits can be increased if the firm decreases output. The firm is certainly earning an economic profit but not as much as it could be Profits can be increased if the firm increases output. The firm's economic profit is necessarily less than zero_
Majid B.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD