Regulation of a natural monopoly will maximize the sum of consumer surplus and producer surplus if the firm is regulated with
A) an average cost pricing rule.
B) a marginal cost pricing rule.
C) rate of return regulation.
D) All of the above answers are correct.

Question

Quizplus · Accepted Answer

A marginal cost pricing rule sets the price equal to the marginal cost, which leads to an efficient allocation of resources and maximizes the total surplus (sum of consumer and producer surplus).

Regulation of a Natural Monopoly Will Maximize the Sum of Consumer