Exhibit 25-40

-Refer to Exhibit 25-4. The profits of an unregulated natural monopoly that becomes regulated on the basis of marginal-cost pricing would

Question

Exhibit 25-40
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-Refer to Exhibit 25-4. The profits of an unregulated natural monopoly that becomes regulated on the basis of marginal-cost pricing would

Quizplus · Accepted Answer

When a natural monopoly is regulated based on marginal-cost pricing, it is forced to set prices equal to the marginal cost of production. For a natural monopoly, marginal costs are typically below average costs due to economies of scale. Therefore, pricing at marginal cost would result in prices that do not cover average total costs, leading to losses.

Exhibit 25-40 ​

Exhibit 25-40