If regulators allow the natural monopolist in Exhibit 156 to earn only anormal profit, it will result in an increase in consumer surplus compared tothe profit maximizing result.

Question

If regulators allow the natural monopolist in Exhibit 15­6 to earn only anormal profit, it will result in an increase in consumer surplus compared tothe profit maximizing result.

Quizplus · Accepted Answer

If the natural monopolist is forced to earn only a normal profit, they will lower their price to where marginal cost equals average total cost, resulting in a higher quantity demanded and a larger consumer surplus. This will come at the expense of the monopolist's profit, but overall welfare (including consumer surplus) is likely to increase.

If Regulators Allow the Natural Monopolist in Exhibit 15­6 to Earn

If Regulators Allow the Natural Monopolist in Exhibit 156 to Earn