If regulation of the natural monopolist called for marginal cost pricing in Figure 27.1,the regulatory agency should set the price at

Question

Quizplus · Accepted Answer

Marginal cost pricing requires that the price be set at the point where the marginal cost curve intersects the demand curve, which is P₄ in Figure 27.1. This ensures that the firm does not earn any economic profit and charges a price that is equal to its cost of production.

If Regulation of the Natural Monopolist Called for Marginal Cost