If a regulatory board wanted to make sure that a natural monopoly chose a price resulting in the efficient level of output,it should set a price equal to:
A) marginal cost.
B) average fixed cost.
C) average variable cost.
D) average total cost.

Question

Quizplus · Accepted Answer

Setting the price equal to marginal cost will ensure that the natural monopoly produces output up to the point where marginal cost equals marginal revenue. This is the efficient level of output because it maximizes the total social welfare by providing the goods and services that consumers value the most at the lowest cost possible. Prices equal to other cost measures such as average fixed cost, average variable cost, or average total cost may not result in such efficient outcomes.

If a Regulatory Board Wanted to Make Sure That a Natural