Monopoly firms, which are provided a subsidy equal to their losses and subject to marginal cost-pricing regulation, have little incentive to minimize costs.

Question

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When a monopoly is subsidized for its losses and is regulated to price at marginal cost, it lacks the financial incentive to minimize costs because any losses incurred are covered by the subsidy. This can lead to inefficiency and higher operational costs than necessary, as the firm does not bear the full financial consequences of its actions.

Monopoly Firms, Which Are Provided a Subsidy Equal to Their