If a regulatory commission sets the regulated price equal to marginal cost for a natural monopoly:
A) losses will result.
B) government subsidies will be unnecessary.
C) the firm will earn economic profits.
D) new firms will want to enter.
E) resource use will not be optimal.

Question

Quizplus · Accepted Answer

When the regulated price is set equal to marginal cost for a natural monopoly, the firm may incur losses because the average cost is typically higher than the marginal cost due to economies of scale.

If a Regulatory Commission Sets the Regulated Price Equal to Marginal