The natural monopolist might have an incentive to decrease cost under

Question

Quizplus · Accepted Answer

Under output regulation, the regulator sets the level of output that the firm must produce, rather than controlling the price or profit. This can incentivize the natural monopolist to reduce costs in order to increase their profit margin, since they cannot charge a higher price to increase their profits. Therefore, output regulation can be effective in promoting cost efficiency in a natural monopoly.

The Natural Monopolist Might Have an Incentive to Decrease Cost