Which of the following is true?
A) Average cost pricing reduces the incentives for a monopolist to find ways to reduce its costs.
B) With natural monopoly, if regulators allow the firm to earn profits, there will be a welfare cost from producing too little of the good.
C) Government regulation of monopolies aims to achieve the efficiency of large-scale production, without permitting the producers to charge monopoly prices.
D) All of the above are true.

Question

Quizplus · Accepted Answer

Average cost pricing can reduce incentives for cost reduction as it allows monopolists to cover costs without needing efficiency. Natural monopolies, if allowed to earn profits, may produce less than socially optimal, causing welfare loss. Regulation aims to balance efficiency and prevent monopoly pricing.

Which of the Following Is True