Asked by Jenna D'Amour on Jun 24, 2024
Verified
If the regulation of a monopoly results in a price equal to marginal cost but the price is below average total cost:
A) the firm can still make an economic profit.
B) the firm will earn only a zero economic profit.
C) efficiency in allocation will be less.
D) the firm will need subsidies to stay in business.
Average Total Cost
The total cost of production divided by the total number of units produced.
Economic Profit
The difference between total revenue and total costs, including both explicit and implicit costs, measuring the opportunity costs of a firm's resources.
- Understand the economic outcomes of regulating monopolies, including the impact on prices, output, and economic efficiency.
Verified Answer
KN
Kevina NowlinJun 27, 2024
Final Answer :
D
Explanation :
When the price is set equal to marginal cost but below average total cost, the firm cannot cover its total costs, leading to losses. To continue operating without incurring losses, the firm would need subsidies.
Learning Objectives
- Understand the economic outcomes of regulating monopolies, including the impact on prices, output, and economic efficiency.
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