The problem with a regulatory authority forcing a natural monopoly to use marginal cost pricing is that the natural monopoly would
A)not be capable of supplying all the quantity that buyers would take off the market.
B)only break even.
C)earn above-normal profits.
D)operate at a loss.
E)price too high.

Question

Quizplus · Accepted Answer

Marginal cost pricing for a natural monopoly typically results in operating at a loss because the price set at marginal cost does not cover the average total costs of production, which are high due to the significant fixed costs associated with natural monopolies.

The Problem with a Regulatory Authority Forcing a Natural Monopoly