Question 70 of 80 ClearWater is a profit-maximizing firm that supplies water to

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Question 70 of 80 ClearWater is a profit-maximizing firm that supplies water to a city. The average total and marginal cost curves for ClearWater are ne sloped at all possible ranges of production. If the socially optimal quantity of water is to be produced, the city government should set the price of water equal to the Oaverage total cost and subsidize the resulting loss of ClearWater O average total cost and tax the resulting profit of ClearWater O marginal cost and subsidize the resulting loss of ClearWater O marginal cost and tax the resulting profit of ClearWater O difference between the average total cost and marginal cost

Explanation / Answer

Answer
Option third
the industry is decreasing cost industry so it should set price equal to marginal cost and if there is loss then provide the subsidy equal to the loss.

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