A government can maximize efficiency in monopoly markets by setting prices equal to the monopolist's average cost of production albeit at the cost of reduced long term innovation.

Question

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By setting prices equal to the monopolist's average cost of production, a government can ensure that the monopolist is operating at optimal efficiency and not overcharging consumers. However, this may discourage the monopolist from investing in new technology or research, as they are not able to earn high profits from their monopoly pricing. This could result in reduced innovation in the long term.

A Government Can Maximize Efficiency in Monopoly Markets by Setting