The outcome of regulating a natural monopoly using the marginal cost pricing rule is
A) that the firm makes a normal profit.
B) that the firm maximizes its profit.
C) that consumer surplus is less than what it would be if the firm maximized its profit.
D) an efficient level of production.
E) that the firm makes an economic profit.

Question

Quizplus · Accepted Answer

Regulating a natural monopoly using the marginal cost pricing rule leads to an efficient level of production where the price charged by the firm is equal to its marginal cost, resulting in allocative efficiency. This ensures that resources are being allocated in the most efficient manner possible and consumer surplus is maximized. However, the firm may not make an economic profit, and may only earn a normal profit.

The Outcome of Regulating a Natural Monopoly Using the Marginal