A natural monopoly that is regulated to set its price according to the marginal cost pricing rule will
A) incur an economic loss.
B) maximize its profit.
C) produce a quantity of output such that price is above average total cost.
D) produce a quantity of output such that marginal cost is above average total cost.

Question

Quizplus · Accepted Answer

A natural monopoly incurs an economic loss when regulated to set its price equal to marginal cost because the average total cost is typically higher than the marginal cost in such cases.

A Natural Monopoly That Is Regulated to Set Its Price