The reason a profit-maximizing natural monopolist cannot set price equal to marginal cost is that it would:
A. then be forced to produce more than it could sell.
B. suffer losses since price would be less than average cost.
C. earn excessive profits, which would attract new firms into the market.
D. then be forced to produce more than the socially optimal level of output.
Answer: B
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Jennifer wants to buy a pound of cheese. She is willing to pay up to $5 per pound for her favorite brand. A local store currently sells her favorite brand for $4 but is willing to receive $3.50 per pound. The surplus earned by the store is _____
a. $0.50 b. $1 c. $1.50 d. $4
A nation can produce two products: tanks and autos. The table below is the nation's production possibilities:
Refer to the above table. If the nation produces more and more tanks, the opportunity cost of each additional tank in terms of autos:
A. Remains constant
B. Falls
C. Increases
D. Cannot be measured