The problem with socially optimal pricing regulation of a natural monopoly is that
A)P

Question

The problem with socially optimal pricing regulation of a natural monopoly is that
A)P < MC.
B)P < AVC.
C)P < ATC.
D)P < MR.

Quizplus · Accepted Answer

Socially optimal pricing for a natural monopoly involves setting price equal to marginal cost (P = MC). However, because natural monopolies have decreasing average total costs (ATC) over relevant output ranges due to economies of scale, setting P = MC typically results in a situation where price is less than average total cost (P < ATC). This can lead to losses for the monopoly since it does not cover its total costs.

The Problem with Socially Optimal Pricing Regulation of a Natural