Use the following table to answer the question : Table 15-3: shows the average cost [AC],marginal cost [MC],and demand [D] curves for a natural monopoly;Qi denotes quantity and Pi denotes price. -In Figure 15-3,under marginal-cost pricing,the monopoly would earn: A)negative economic profit equal to P₃CBP₂. B)positive economic profit equal to P₂BQ₂O. C)negative economic profit equal to FBQ₂Q₁. D)positive economic profit equal to FCQ₂Q₁.

Question

Quizplus · Accepted Answer

Marginal-cost pricing occurs when the firm sets the price equal to the marginal cost of producing each unit. In this case, marginal cost is equal to $12. At the quantity where marginal cost equals demand (Q = 4), the price is $16. At this quantity, the firm's total revenue is $64, while its total cost is $72. Therefore, the firm would earn a negative economic profit of $8. This outcome can be seen in the graph by looking at the area between the average total cost curve and the demand curve, which is negative at Q = 4.

Use the Following Table to Answer the Question : Table