A natural monopoly regulated with a marginal cost pricing rule results in
A) an economic loss for the regulated firm.
B) an economic profit for the regulated firm.
C) a normal profit for the regulated firm.
D) a deadweight loss.

Question

Quizplus · Accepted Answer

When a natural monopoly is regulated with a marginal cost pricing rule, it sets prices equal to marginal cost. This typically results in prices that are below average total cost, leading to an economic loss for the firm because it cannot cover its total costs.

A Natural Monopoly Regulated with a Marginal Cost Pricing Rule