Under a marginal cost pricing rule,a regulated natural monopoly
A)makes an economic profit and a deadweight loss arises.
B)makes an economic profit with no deadweight loss.
C)incurs an economic loss with no deadweight loss.
D)incurs an economic loss and a deadweight loss arises.
E)breaks even.

Question

Quizplus · Accepted Answer

Under marginal cost pricing rule, a regulated natural monopoly incurs an economic loss with no deadweight loss. This is because the price charged for the good or service equals the marginal cost of production, which is below the average cost of production. As a result, the firm incurs losses but does not create a deadweight loss by producing less than the socially optimal quantity. This helps to ensure that consumers receive the goods or services at the lowest possible cost while preventing the natural monopoly from exploiting its market power.

Under a Marginal Cost Pricing Rule,a Regulated Natural Monopoly