The problem with adopting a fair-return pricing policy for a natural monopoly is that
A)economic profits will be positive.
B)economic profits will be negative.
C)it is not productively efficient.
D)it is not allocatively efficient.

Question

Quizplus · Accepted Answer

A fair-return pricing policy allows the natural monopoly to cover its costs, including a normal profit, but it does not ensure that the price equals marginal cost, which is necessary for allocative efficiency.

The Problem with Adopting a Fair-Return Pricing Policy for a Natural