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) a reduction in the output by these firms.
B) allocative efficiency.
C) distorted investment decisions.
D) productive efficiency.
E) both allocative efficiency and productive efficiency.

Question

Quizplus · Accepted Answer

Average-cost pricing can lead to distorted investment decisions because it may not provide the correct signals for investment in capacity or technology, as prices are set to cover average costs rather than marginal costs.

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