Use the figure below to answer the following questions. Figure 12.5.2
-Consider the natural monopoly depicted in Figure 12.5.2.What area in the graph represents the deadweight loss arising from an average cost pricing rule?
A)ABD
B)DGF
C)DEF
D)ACF
E)CBDE

Question

Use the figure below to answer the following questions.  Figure 12.5.2
-Consider the natural monopoly depicted in Figure 12.5.2.What area in the graph represents the deadweight loss arising from an average cost pricing rule?
A)ABD 
B)DGF 
C)DEF 
D)ACF 
E)CBDE

Quizplus · Accepted Answer

The deadweight loss arises when the price is set above marginal cost, which is the case with an average cost pricing rule. This leads to a quantity of output below the socially efficient level (Q*) and the area of deadweight loss is the triangle DFE. Therefore, the correct answer is C.

Use the Figure Below to Answer the Following Questions