If a natural monopoly does not inflate its costs, the output it produces is the smallest when the monopoly is
A) regulated according to an average cost pricing rule.
B) regulated according to a marginal cost pricing rule.
C) regulated to maximise total surplus.
D) left unregulated.

Question

Quizplus · Accepted Answer

When a natural monopoly is left unregulated, it will produce the smallest output because it will restrict output to maximize its profits, unlike when it is regulated to follow pricing rules that aim to increase output.

If a Natural Monopoly Does Not Inflate Its Costs, the Output