If the government regulates the price a natural monopolist can charge to be equal to the firm's average total cost, the firm has no incentive to reduce costs.

Name: If the government regulates the price a natural monopolist can charge to be equal to the firm's average total cost, the firm has no incentive to reduce costs.
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Question

Quizplus · Accepted Answer

If the price is set equal to average total cost, the firm earns zero economic profit, so reducing costs would not increase profits, removing the incentive to cut costs.

If the Government Regulates the Price a Natural Monopolist Can