Asked by Thanh Huynh on Jun 29, 2024
Verified
If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price
A) at which the marginal cost curve intersects the demand curve.
B) at which marginal revenue is zero.
C) at which the average total cost curve intersects the demand curve.
D) that corresponds with the equality of marginal cost and marginal revenue.
Socially Optimal Price
This is the price point at which the social benefits of product consumption match the overall cost of production, aiming for an efficient allocation of resources.
Natural Monopoly
A type of monopoly that exists due to the high fixed or startup costs of operating a business in a specific industry, making it inefficient for more than one firm to operate.
Marginal Cost
The increase in cost resulting from the production of one additional unit of a product.
- Understand the concepts of socially optimal pricing and fair-return pricing in the context of regulating monopolies.
Verified Answer
Learning Objectives
- Understand the concepts of socially optimal pricing and fair-return pricing in the context of regulating monopolies.
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