If a natural monopoly is forced to follow a policy of average-cost pricing, the monopolist will

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When a natural monopoly is forced to follow a policy of average-cost pricing, it is required to set its price equal to its average total cost. Since in a natural monopoly, average total cost is higher than the marginal cost, unregulated pricing policy can lead to a higher price and lower output. When the monopolist is forced to charge a price equal to average total cost, the price charged will be lower than the unregulated price but still, cover all its costs, including a normal profit. Therefore, the monopolist will charge a lower price than if it were not regulated.

If a Natural Monopoly Is Forced to Follow a Policy