A regulated natural monopoly maximises total welfare by charging a price equal to marginal cost.

Question

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A regulated natural monopoly has the ability to produce at a lower cost than any potential competitor due to economies of scale. However, if it charges a price higher than the marginal cost, it will not fully achieve the efficiency and the welfare of consumers. Therefore, by charging a price equal to marginal cost, it can achieve total welfare where the benefits of producing the goods are maximized, and the price becomes affordable for consumers.

A Regulated Natural Monopoly Maximises Total Welfare by Charging a Price