In marginal cost pricing, the natural monopoly would have to set price equal to

Question

Quizplus · Accepted Answer

Marginal cost pricing requires the firm to set the price equal to its marginal cost (MC). This ensures that the firm charges a price that is equal to the additional cost of producing an extra unit, and that it earns zero economic profit. In the case of a natural monopoly, where the firm has economies of scale and is the most efficient producer, setting the price equal to MC would allow the firm to cover its costs and provide the socially optimal level of output. Therefore, the answer is D.

In Marginal Cost Pricing, the Natural Monopoly Would Have to Set