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In the graph below for City Gas, which is a natural monopoly, there are a variety of curves which represent the long run posi

City Gas-A Natural Monopoly Demand Average cost Marginal Cost Dollars (5) Millions of Marginal Revenue

- 6 hours 12/50 City Gas Quantity (millions of therms) Price (5 per therm) Total Cost Marginal Cost Total Revenue Marginal Re

Select the correct answer below: As output increases average cost declines. This is true and is depicted by the purple curve,

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Answer #1

Option C.

Given the graph above, the marginal revenue curve of the firm shows that the marginal revenue curve shows a declining marginal revenue position which is falling at a greater rate than average cost and marginal cost, indicating an inability to raise price in relation to the average cost. The marginal revenue curve is falling at an increasing rate and thus the firms cannot increase their prices in relation to average cost of production.

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