Consider the case of a natural monopoly with falling long-run average costs.If regulation sets the price equal to marginal cost,then
A)the firm would operate at a loss and eventually go out of business.
B)shortages would result.
C)the demand curve would shift to the left.
D)the firm would earn economic profits.
E)the outcome would be allocatively inefficient.

Question

Quizplus · Accepted Answer

When price is set equal to marginal cost in a natural monopoly with falling long-run average costs, the price is below average cost, leading to losses for the firm.

Consider the Case of a Natural Monopoly with Falling Long-Run