If the government sets a natural monopolist's price equal to marginal cost, the:
A) natural monopolist will decrease output.
B) natural monopolist will earn even larger profits.
C) higher price will create forgone gains from trade.
D) natural monopolist will incur a loss and be forced to shut down unless there is a subsidy.

Question

Quizplus · Accepted Answer

Setting the price equal to marginal cost for a natural monopolist typically results in a price below average total cost, leading to losses unless subsidized.

If the Government Sets a Natural Monopolist's Price Equal to Marginal