It must always be true that if regulator forces a natural monopolist to produce where __________,the firm will earn __________.
A) MR = MC;an economic profit
B) MR = MC;an economic loss
C) P = MC;zero economic profit
D) P = MC;an economic loss
E) P = AC;an economic loss

Question

Quizplus · Accepted Answer

When a regulator forces a natural monopolist to produce where price equals marginal cost (P = MC), the firm will earn an economic loss because the price is below average total cost (ATC) in a natural monopoly, where economies of scale mean that ATC is decreasing.

It Must Always Be True That If Regulator Forces a Natural