Question

In using a marginal cost pricing rule to regulate a natural monopolist, losses would be sustained by the firm because the price is _____ cost.

Answer 1

In using a marginal cost pricing rule to regulate a natural monopolist, losses would be sustained by the firm because the price is below the average total cost.

The marginal cost, or price of producing more, is the variation in total cost that results from increasing the quantity produced in economics. It can refer to an increase of one unit of output in some settings and to the rate of change of total cost as output increases by a tiny amount in others. The marginal cost is the slope of the total cost, or the rate at which it increases with output, and is expressed in dollars per unit while the total cost is expressed in dollars. The difference between average cost, which is the entire cost divided by the quantity of units produced, and marginal cost is that latter.

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