For a regulated natural monopoly,an average cost pricing rule sets price equal to
A)marginal cost.
B)total fixed cost.
C)average variable cost.
D)average fixed cost.
E)average total cost.

Question

Quizplus · Accepted Answer

Average total cost is the sum of average fixed cost and average variable cost. Since a natural monopoly has high fixed costs and low variable costs, pricing at average total cost allows the firm to cover its fixed costs while still keeping the price affordable for consumers. Therefore, choice E is the best answer.

For a Regulated Natural Monopoly,an Average Cost Pricing Rule Sets