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)allocative efficiency.
B)productive efficiency.
C)distorted investment decisions.
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 would result in distorted investment decisions as these firms would have no incentive to invest in improving productivity and reducing costs since they are guaranteed to earn the average cost of production. This may result in higher costs for consumers and ultimately, lower economic welfare. Therefore, choice C is the correct answer.

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