For a natural monopoly, if price is equal to marginal cost, then
A) the deadweight loss is as large as possible.
B) the firm makes zero economic profit.
C) there is no deadweight loss.
D) there is no deadweight loss and the firm makes a positive economic profit.

Question

Quizplus · Accepted Answer

A natural monopoly occurs when one firm can produce the entire output of the market at a lower cost than any combination of smaller firms. This means that the firm's marginal cost is also equal to its average total cost, and therefore, if the firm sets its price equal to its marginal cost, it will be producing at the socially efficient level and there will be no deadweight loss. The firm will not be making a positive economic profit in the long run, but it may earn a normal profit.

For a Natural Monopoly, If Price Is Equal to Marginal