The profit-maximizing natural monopoly will

Question

Quizplus · Accepted Answer

A natural monopoly has high fixed costs but low marginal costs, which means that producing additional units of output does not significantly increase the total cost. Therefore, a profit-maximizing natural monopoly will charge the highest price per unit for the quantity of output it chooses to produce, which is where marginal cost equals marginal revenue. Setting price equal to marginal cost would result in zero profits for a natural monopoly. The quantity produced at MR=MC may not necessarily be the profit-maximizing quantity for a natural monopoly. The production costs of a natural monopoly may be higher or lower depending on the regulatory environment, but this is not directly related to its profit-maximizing behavior.

The Profit-Maximizing Natural Monopoly Will