When regulating a natural monopoly,the regulating agency should set price equal to marginal cost.

Question

Quizplus · Accepted Answer

When a natural monopoly exists, there is only one provider of a good or service, and they have significant control over the market price. In order to prevent them from exercising this monopoly power and charging excessively high prices, a regulating agency can intervene and set a price that is equal to the marginal cost of producing the good or service. This ensures that the provider is only making a fair profit and not exploiting their monopolistic position.

When Regulating a Natural Monopoly,the Regulating Agency Should Set Price