A natural monopolist that sets prices equal to marginal cost will:
A)set a price that is greater than average total costs.
B)be inefficient.
C)incur losses.
D)earn zero accounting profits.

Question

Quizplus · Accepted Answer

A natural monopolist setting prices equal to marginal cost will likely incur losses because their average total cost will be higher than the price at the output level where marginal cost equals price, due to the nature of their economies of scale and the shape of their average cost curve.

A Natural Monopolist That Sets Prices Equal to Marginal Cost