For a natural monopoly,the efficient quantity is produced when the firm is regulated so that A) P = ATC. B) P ATC. C) P = MC. D) P MC. E) P

Question

For a natural monopoly,the efficient quantity is produced when the firm is regulated so that
A) P = ATC.
B) P > ATC.
C) P = MC.
D) P > MC.
E) P < MC.

Quizplus · Accepted Answer

In a natural monopoly, the firm has economies of scale such that it is most efficient for one firm to supply the entire market to minimize total costs. However, without regulation, the firm may choose to produce less than the efficient quantity, leading to higher prices and less output than is socially optimal. Therefore, regulating the firm to produce where P = MC ensures that the firm is producing at the efficient quantity and charging a price that reflects the marginal cost of production.

For a Natural Monopoly,the Efficient Quantity Is Produced When the Firm