Under the average-cost pricing policy, a regulated monopolist is guaranteed a normal economic profit even if there is a change in its cost of production.

Question

Quizplus · Accepted Answer

Under average-cost pricing policy, a regulated monopolist is allowed to set the price of its products based on its average cost of production. This means that if the cost of production increases, the regulated monopolist is allowed to increase the price of its products to cover for the increased cost and still make a normal economic profit. Similarly, if the cost of production decreases, the regulated monopolist can reduce the price of its products and still make the same normal economic profit. Therefore, the statement is true.

Under the Average-Cost Pricing Policy, a Regulated Monopolist Is Guaranteed