In practice,placing a price control on a natural monopoly:
A)is easy and commonly practiced.
B)is difficult because of lack of information.
C)often creates the same outcome as public ownership of the industry.
D)is never a good idea.

Question

Quizplus · Accepted Answer

Placing a price control on a natural monopoly is difficult because of the lack of information. Natural monopolies have high fixed costs and low marginal costs, making it difficult to determine the socially optimal price. If the price is set too low, the firm may not be able to cover its costs, leading to a decrease in quality or even bankruptcy. If set too high, consumers may be unfairly burdened. Thus, extensive information is needed to set a price that is fair to both the firm and consumers.

In Practice,placing a Price Control on a Natural Monopoly