For the regulated natural monopoly, an average cost pricing rule sets price equal to
A)marginal cost.
B)total fixed cost.
C)average variable cost.
D)average fixed cost.
E)average total cost.

Question

Quizplus · Accepted Answer

Regulated natural monopolies are allowed to operate as monopolies due to the high fixed costs of entry and the economies of scale associated with providing the service or product. Therefore, they are subject to government regulation to protect consumers from being charged excessive prices. Average cost pricing aims to provide the firm with a reasonable profit while ensuring that prices are not excessively high for consumers. Setting the price at average total cost ensures that all costs, including fixed costs, are covered while still allowing the firm to make a reasonable profit.

For the Regulated Natural Monopoly, an Average Cost Pricing Rule