The rail system in Metropolis is a natural monopoly.If the governmentregulates the system by setting the fare equal to marginal cost, which of thefollowing will be true?

Question

Quizplus · Accepted Answer

Since the rail system is a natural monopoly, setting the fare equal to marginal cost will allow the firm to operate at an efficient level of output, where price is lower and output is higher than if the monopoly were unregulated. This is because in a natural monopoly, the firm can achieve economies of scale by producing at a larger scale, and setting the fare equal to marginal cost will allow them to increase their output and lower their price without incurring losses. Therefore, consumers will benefit from lower prices and higher output.

The Rail System in Metropolis Is a Natural Monopoly