If regulation of a monopoly results in a price equal to marginal cost, but price is below average total cost:
A) the firm can still make an economic profit.
B) the firm will earn only a zero economic profit.
C) efficiency in allocation will be less.
D) the firm will require subsidization or it will go out of business.

Question

Quizplus · Accepted Answer

When price is set equal to marginal cost but below average total cost, the firm cannot cover its total costs, leading to losses. To continue operating under these conditions, the firm would need external financial support, such as subsidies.

If Regulation of a Monopoly Results in a Price Equal