If regulation imposes marginal cost pricing on a natural monopoly, then the monopoly will:
A) suffer persistent economic losses.
B) earn a fair, but not excessive, return on its assets.
C) produce too little output to achieve efficiency.
D) experience diseconomies of scale.

Question

Quizplus · Accepted Answer

Natural monopolies, due to their high fixed costs and economies of scale, would not cover their average total costs if they were to price at marginal cost, leading to economic losses.

If Regulation Imposes Marginal Cost Pricing on a Natural Monopoly