Multiple Choice
Which of the following is a problem that arises when regulations force "natural monopolies," like electric utilities, to charge a price that is equal to their marginal cost (MC) ?
A) This price will force the firms out of business in the long run.
B) The firms have an incentive to pad their fixed costs.
C) When price is equal to MC, new firms will enter the industry and drive up the costs of production.
D) Both b and c are correct.
Correct Answer:
Verified
Correct Answer:
Verified
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