Figure 15-16

Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-16.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

Question

Figure 15-16
  
Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 15-16.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

Quizplus · Accepted Answer

If a natural monopoly is required to produce at the economically efficient output level, which is where price equals marginal cost, the firm will likely incur losses because the price may not cover the average total cost. This is because natural monopolies typically have high fixed costs and declining average costs over the range of output, making it unsustainable in the long run without subsidies.

Figure 15-16 Figure 15-16 Shows the Market Demand and Cost Curves Facing