If there is just one producer in an industry where the average total cost curve declines throughout the output range up to where it intersects the industry demand curve:
A) the industry will be a natural monopoly.
B) charging a price equal to marginal cost would entail economic losses for the producer.
C) charging a price equal to average cost would entail a welfare cost.
D) All of the above would be true.

Question

Quizplus · Accepted Answer

The industry is a natural monopoly because the average total cost declines over the entire output range. Charging a price equal to marginal cost would result in losses because the price would be below average total cost. Charging a price equal to average cost would cover costs but result in a welfare loss due to reduced output compared to the socially optimal level.

If There Is Just One Producer in an Industry Where