If setting the price of a natural monopoly at the socially optimal level would cause the seller to have losses, the government often ends up
A)not regulating the natural monopoly, allowing it to charge the profit maximizing price.
B)being the provider of the good or service and covering any losses with tax revenue.
C)subsidizing new entrants to create competition that will bring down the price.
D)funding research to bring down the cost of production.

Question

Quizplus · Accepted Answer

If setting the price of a natural monopoly at the socially optimal level would cause losses for the seller, it would be difficult for the seller to continue to provide the good or service in the long run. In this case, government intervention becomes necessary. The government can step in as the provider of the good or service and cover any losses with tax revenue. This ensures that the good or service is still available to consumers and the market failure of a monopoly is addressed.

If Setting the Price of a Natural Monopoly at the Socially