Gene's Car Wash is a natural monopoly. To wash 100 cars a week, if Gene is unregulated, he would charge a price of $10. Gene's long-run average cost for washing 100 cars is $8, his average variable cost is $6, and his marginal cost is $4. If Gene was regulated using a marginal cost pricing rule, the price he would be allowed to charge to wash 100 cars is

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Since Gene is a natural monopoly, his long-run average cost is lower than the price he would charge in an unregulated market. In this case, his long-run average cost is $8, which is less than the $10 he would charge in an unregulated market. However, if Gene was regulated using a marginal cost pricing rule, he would be required to charge a price equal to his marginal cost, which is $4. This would ensure that he is not earning any economic profit, but is still able to cover his costs. Therefore, the price he would be allowed to charge to wash 100 cars is $4.

Gene's Car Wash Is a Natural Monopoly