A policy of average-cost pricing will initially ________ price for a natural monopoly, but as costs increase price will ________.

Question

Quizplus · Accepted Answer

Average-cost pricing involves setting the price of a product equal to its average total cost. In the case of a natural monopoly, this will result in a price that is initially higher than it would be under perfect competition, as the firm has market power. However, as costs increase over time, the price required to cover those costs will also increase, resulting in higher prices for consumers. Therefore, as costs increase, the policy of average-cost pricing will lead to an increase in price for the natural monopoly. Therefore, the correct answer is B.

A Policy of Average-Cost Pricing Will Initially ________ Price for a Natural