A likely consequence over time of an average-cost pricing policy for a natural monopoly is

Question

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An average-cost pricing policy means that the natural monopoly sets the price equal to the average cost of production. In the long run, if the price is set at the average cost, the firm will earn zero economic profit. However, if the average cost curve increases due to external factors such as an increase in the cost of inputs, the firm will have to increase its price to stay profitable. Therefore, over time, an average-cost pricing policy is likely to result in an increase in the average cost curve.

A Likely Consequence Over Time of an Average-Cost Pricing Policy