If the government regulates the price a natural monopolist can charge to be equal to the firm's marginal cost, the government will likely need to subsidize the firm.

Question

Quizplus · Accepted Answer

When a natural monopolist's price is set equal to its marginal cost, it often results in the firm operating at a loss because the price might not cover the average total cost. Therefore, to sustain operations and maintain supply, the government might need to subsidize the firm.

If the Government Regulates the Price a Natural Monopolist Can