Figure 10-16
Figure 10-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 10-16.Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?

Question

Figure 10-16
  Figure 10-16 shows the market demand and cost curves facing a natural monopoly.
-Refer to Figure 10-16.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 not cover its average total costs and will sustain losses, making it unsustainable in the long run without subsidies.

Figure 10-16 Figure 10-16 Shows the Market Demand and Cost