A natural monopolist that is price-regulated at the marginal cost output level will:
A)produce the optimal level of output and earn a normal profit.
B)eventually incur losses if MC is less than ATC.
C)be producing at the same output and price that an unregulated natural monopolist would choose.
D)produce the optimal level of output and earn an economic profit greater than zero.

Question

Quizplus · Accepted Answer

When a natural monopolist is regulated to price at the marginal cost (MC), if MC is less than average total cost (ATC), the firm will not cover its total costs and will incur losses over time. This is because pricing at MC does not allow for the recovery of the fixed costs that are a significant part of a natural monopolist's cost structure.

A Natural Monopolist That Is Price-Regulated at the Marginal Cost