-When regulators require that a natural monopoly sets price equal to average total cost:
A)it is said to be allowing a fair rate of return.
B)the firm earns a super normal profit.
C)the firm shuts down permanently.
D)the firm operates at the profit-maximizing level of output.
E)the firm shuts down temporarily.

Question

-When regulators require that a natural monopoly sets price equal to average total cost:
A)it is said to be allowing a fair rate of return. 
B)the firm earns a super normal profit. 
C)the firm shuts down permanently. 
D)the firm operates at the profit-maximizing level of output. 
E)the firm shuts down temporarily.

Quizplus · Accepted Answer

When regulators require a natural monopoly to set prices equal to average total cost, it allows the firm to cover all its costs, including a normal profit, but not earn supernormal (excessive) profits. This approach is often described as allowing a "fair rate of return," ensuring the firm can sustain its operations without exploiting consumers.

-When Regulators Require That a Natural Monopoly Sets Price Equal