If the government attempts to force a natural monopoly to charge a price equal to marginal cost,
A) the natural monopoly will shut down.
B) the natural monopoly will still make high profits.
C) the natural monopoly's marginal cost curve will shift up.
D) total welfare is maximized.

Question

Quizplus · Accepted Answer

Forcing a natural monopoly to charge a price equal to marginal cost can lead to losses because their average total cost is typically higher than the marginal cost due to high fixed costs. This could result in the monopoly shutting down if it cannot cover its costs.

If the Government Attempts to Force a Natural Monopoly to Charge