If economies of scale are high and government regulators set prices equal to a monopolist's marginal cost,:
A) the monopolist will still earn a profit, just smaller than with no regulation.
B) the monopolist will be taking a loss.
C) there will be more incentive to innovate.
D) the market will be more efficient than if the government regulators set prices equal to average cost.

Question

Quizplus · Accepted Answer

When prices are set equal to marginal cost in a situation with high economies of scale, the price may be below average cost, leading the monopolist to incur losses.

If Economies of Scale Are High and Government Regulators Set