If a firm is a natural monopoly, competition from other firms cannot be counted on to force price down to the level where the company earns zero economic profit.How are prices usually set in natural monopoly markets in the United States?
A)Each natural monopoly is made a public franchise. The public franchise is then required to set its price equal to its marginal cost.
B)Natural monopolies are privately owned, but prices proposed by the firms must be approved by the Antitrust Division of the Department of Justice.
C)Natural monopolies are privately owned and are allowed to set their own prices. Government regulation of the firms would result in greater deadweight losses.
D)Local or state regulatory commissions usually set prices for natural monopolies.

Question

Quizplus · Accepted Answer

Local or state regulatory commissions usually set prices for natural monopolies in the United States. This is done to prevent the natural monopoly from charging excessively high prices and to ensure that customers have access to the service provided. The regulatory commissions determine a fair and reasonable price that allows the natural monopoly to earn a reasonable rate of return on their investment while also protecting consumers from price gouging.

If a Firm Is a Natural Monopoly, Competition from Other