What challenge does a government face when regulating price in a natural monopoly?
A)Natural monopoly prices are not public, and so the government does not know the current price.
B)Costs will fall if the price is reduced, allowing the monopolist to maintain high profits.
C)There is a net loss in social welfare when a competitive price is imposed on a natural monopoly.
D)Setting a price ceiling at the marginal cost of the last unit sold may cause the seller to have losses.

Question

Quizplus · Accepted Answer

Setting a price ceiling at the marginal cost can lead to losses for the seller because natural monopolies often have high fixed costs and low marginal costs, meaning the price may not cover the total average cost.

What Challenge Does a Government Face When Regulating Price in a Natural