What is the drawback of forcing a natural monopolist to use a marginal cost pricing rule?
A) No deadweight loss is eliminated.
B) The gain in consumer surplus will be less than the loss in producer surplus, thus creating additional deadweight loss.
C) The firm will incur an economic loss.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

Forcing a natural monopolist to price at marginal cost typically results in the firm incurring an economic loss because its average total cost is higher than the marginal cost at the output level where marginal cost intersects the demand curve. This is due to the nature of natural monopolies having high fixed costs and decreasing average costs over the relevant range of production.

What Is the Drawback of Forcing a Natural Monopolist to Use