The figure above shows a natural monopoly.
-In the figure above,if the firm is regulated using a marginal cost pricing rule,the deadweight loss created is equal to the area of
A) ABG.
B) BEFG.
C) BCFG.
D) BCE.
E) None of the above because there is no deadweight loss created.

Question

The figure above shows a natural monopoly.
-In the figure above,if the firm is regulated using a marginal cost pricing rule,the deadweight loss created is equal to the area of
A) ABG. 
B) BEFG. 
C) BCFG. 
D) BCE. 
E) None of the above because there is no deadweight loss created.

Quizplus · Accepted Answer

Under marginal cost pricing, the firm sets the price equal to the marginal cost, which is the socially optimal pricing strategy. This ensures that the quantity produced and consumed is at the socially optimal level, eliminating any deadweight loss.

The Figure Above Shows a Natural Monopoly