An average cost pricing rule for a natural monopoly sets the price ________ the marginal cost, thereby ________ a deadweight loss.
A) below; avoiding
B) below; creating
C) above; avoiding
D) above; creating

Question

Quizplus · Accepted Answer

An average cost pricing rule sets the price above the marginal cost, which leads to a deadweight loss because the price is higher than the efficient level where price equals marginal cost.

An Average Cost Pricing Rule for a Natural Monopoly Sets