Final answer:
Departments using cost-plus pricing add a markup to average production costs to set charges. Monopolists also follow a similar approach to decide prices by assessing demand curves to ensure normal profits without excessive monopolistic gains. Such cost-plus methods are common in regulated industries like public utilities to balance sustainability and consumer protection. The correct option is B.
Step-by-step explanation:
Departments that are aware of the cost of their products and want to set charges often use cost-plus pricing. This method involves calculating the average cost of production and then adding a margin or markup to determine the final price. In the case of a monopoly, after identifying the profit-maximizing quantity of output, the monopolist will set the price by looking to its perceived demand curve.
They find the price at which the set quantity of output can be sold, as shown by the intersection on the demand curve. This process ensures the monopolist can cover average costs and earn a normal rate of profit without gaining excessive monopoly profits.
Regulators have often used a similar cost-plus approach when setting prices for public utilities to prevent these firms from charging abnormally high prices while still ensuring they can operate sustainably.