In the long run,the imposition of average- cost pricing in natural monopolies,such as Manitoba Hydro and New Brunswick Power,would generally lead to
A)productive efficiency.
B)distorted investment decisions.
C)allocative efficiency.
D)a reduction in the output by these firms.
E)both allocative efficiency and productive efficiency.

Question

Quizplus · Accepted Answer

Imposing average-cost pricing in natural monopolies can lead to distorted investment decisions because the price does not reflect the actual cost of production, which may discourage firms from investing in new and more efficient technology. It may also lead to underinvestment in capacity expansion or maintenance, which can result in a reduction of output by these firms. However, it may also lead to some degree of allocative efficiency in the short run. Therefore, the best choice is B.

In the Long Run,the Imposition of Average- Cost Pricing in Natural