With a natural monopoly,
A) no regulation is necessary because it is a natural monopoly.
B) regulation takes the form of forcing competition from new firms.
C) regulation takes the form of forcing the company out of business.
D) regulation can take the form of average cost pricing to allow coverage of costs.
E) regulation takes the form of breaking the company into several competing firms.

Question

Quizplus · Accepted Answer

With a natural monopoly, regulation can take the form of average cost pricing to allow coverage of costs. This regulation ensures that the company charges a price that covers its costs but does not allow it to earn excessive profits. This type of regulation is necessary to prevent the natural monopoly from abusing its market power and charging monopolistic prices. Option A, B, and E are not feasible options, and option C is not a reasonable solution to regulate a natural monopoly.

With a Natural Monopoly