When an average cost pricing rule is imposed on a natural monopoly, _______ .
A) total surplus is maximised and the monopoly makes an economic profit
B) the monopoly makes zero economic profit
C) total surplus is maximised and the monopoly incurs an economic loss
D) the monopoly makes an economic profit

Question

Quizplus · Accepted Answer

When an average cost pricing rule is imposed on a natural monopoly, it is required to set its price equal to its average costs, which means it will make zero economic profit. This is because the price covers all the costs, including normal profit, but does not allow for any excess profit above this level.

When an Average Cost Pricing Rule Is Imposed on a Natural