Under a marginal cost pricing rule, a regulated natural monopoly
A) incurs an economic loss and there is no deadweight loss.
B) incurs an economic loss and there is a deadweight loss.
C) makes a positive economic profit and there is a deadweight loss.
D) makes zero economic profit and there is no deadweight loss.

Question

Quizplus · Accepted Answer

Under a marginal cost pricing rule, a regulated natural monopoly incurs an economic loss because it is required to price its goods or services equal to the marginal cost, which is typically below the average total cost in a natural monopoly setting. This leads to an economic loss for the firm. However, this pricing strategy eliminates the deadweight loss associated with monopoly pricing, where prices are set above marginal costs.

Under a Marginal Cost Pricing Rule, a Regulated Natural Monopoly