If a firm is a natural monopoly, competition from other firms cannot be counted on to force price down to the level where the company earns zero economic profit. How are prices usually set in natural monopoly markets in the United States?
A) Each natural monopoly is made a public franchise. The public franchise is then required to set its price equal to its marginal cost.
B) Natural monopolies are privately owned, but prices proposed by the firms must be approved by the Antitrust Division of the Department of Justice.
C) Natural monopolies are privately owned and allowed to set their own prices. Government regulation of the firms would result in greater deadweight losses.
D) Local or state regulatory commissions usually set prices for natural monopolies.

Question

Quizplus · Accepted Answer

In the United States, local or state regulatory commissions usually set prices for natural monopolies. These commissions are responsible for ensuring that the firm is not charging excessive prices while still allowing it to earn a reasonable rate of return on its investments. This form of government regulation helps prevent the natural monopoly from generating excessive profits at the expense of consumers.

If a Firm Is a Natural Monopoly, Competition from Other