Answer to Question #49401 in Microeconomics for susie

Question #49401
If a public utilities regulatory agency requires a local electricity provider (a natural monopoly) to set the price of its output equal to marginal cost and this price is below its average total cost then: i. the firm will realize an economic profit ii. the firm will break even iii. there will be no deadweight loss iv. the firm will suffer a loss
1
Expert's answer
2014-12-02T13:22:11-0500
If a public utilities regulatory agency requires a local electricity provider (a natural monopoly) to set the price of its output equal to marginal cost and this price is below its average total cost then the firm will suffer a loss, as total profit TP = (P - ATC)*Q and P < ATC.
So, the right answer is:
iv. the firm will suffer a loss

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