If the government wants to regulate a natural monopoly while ensuring the firm does not earn profits or require subsidies, the government will force the firm to set price equal to

Question

Quizplus · Accepted Answer

Setting the price equal to average cost allows the firm to cover all its costs, including fixed and variable costs, without making a profit or incurring a loss. This approach ensures the firm can sustain its operations without requiring subsidies or earning extra profits, which aligns with the goal of regulating a natural monopoly to operate efficiently while serving the public interest.

If the Government Wants to Regulate a Natural Monopoly While