Average cost pricing is permitted
A)when a service is produced by a natural monopoly.
B)when few firms have the incentive to provide a service.
C)in price-taking markets.
D)when firms exhibit diseconomies of scale.

Question

Quizplus · Accepted Answer

Average cost pricing is often permitted when a service is produced by a natural monopoly because it can lead to more efficient and equitable outcomes. In a natural monopoly, a single firm can produce the total output in the market at a lower cost than could multiple firms, making it inefficient to have competition. Average cost pricing helps ensure the monopoly does not charge excessively high prices.

Average Cost Pricing Is Permitted