For a natural monopoly where average cost declines after intersecting the demand curve,marginal-cost pricing would lead to:
A)a horizontal demand curve.
B)a surplus and a consequent fall in price.
C)an economic loss for the firm.
D)a higher price than under average-cost pricing.

Question

Quizplus · Accepted Answer

Marginal-cost pricing in a natural monopoly, where average costs are declining, would result in prices set below average costs. This would lead to an economic loss for the firm because it would not be able to cover its total costs.

For a Natural Monopoly Where Average Cost Declines After Intersecting