If a public service commission requires a natural monopoly to set its price equal to the long-run marginal cost, this will result in

Question

Quizplus · Accepted Answer

Setting the price equal to the long-run marginal cost in a natural monopoly typically results in losses because natural monopolies have high fixed costs and decreasing average costs. At the long-run marginal cost, the price might not cover the average total costs, leading to losses.

If a Public Service Commission Requires a Natural Monopoly to Set