With an average cost pricing rule,the quantity produced by the natural monopoly is ________ the quantity produced with a marginal cost pricing rule.
A) greater than
B) less than
C) equal to
D) greater than in the long run and less than in the short run than
E) not comparable to

Question

Quizplus · Accepted Answer

With an average cost pricing rule, the natural monopoly produces less quantity than with a marginal cost pricing rule. This is because the average cost pricing leads to a higher price than the marginal cost pricing, which reduces the quantity demanded. The natural monopoly produces at the point where the average cost equals the price, which is higher than the point where the marginal cost equals the price. Hence, the quantity produced is less with an average cost pricing rule.

With an Average Cost Pricing Rule,the Quantity Produced by the Natural