If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price
A)at which the marginal cost curve intersects the demand curve.
B)at which marginal revenue is zero.
C)at which the average total cost curve intersects the demand curve.
D)that corresponds with the equality of marginal cost and marginal revenue.

Question

Quizplus · Accepted Answer

Setting the price where the marginal cost curve intersects the demand curve ensures that the price reflects the true cost of producing one more unit of the good or service, which is considered socially optimal in economic theory. This approach maximizes allocative efficiency by ensuring that the price is set at a level where the value to consumers (as represented by the demand curve) matches the cost to society of producing the additional unit (as represented by the marginal cost).

If a Regulatory Commission Wants to Establish a Socially Optimal