In using a marginal cost pricing rule to regulate a natural monopolist, losses would be sustained by the firm because the price is _____ cost.
A) below the marginal
B) below the average total
C) above the marginal
D) above the average total

Question

Quizplus · Accepted Answer

In a marginal cost pricing rule, the price is set equal to the marginal cost. For a natural monopolist, the marginal cost is typically below the average total cost due to economies of scale. Therefore, if the price is set at the marginal cost, it would be below the average total cost, leading to losses for the firm.

In Using a Marginal Cost Pricing Rule to Regulate a Natural