If the government regulates the price that a natural monopolist can charge to be equal to the firm's marginal cost, the firm will
A)earn zero profits.
B)earn positive profits, causing other firms to enter the industry.
C)earn negative profits, causing the firm to exit the industry.
D)minimize costs in order to lower the price that it charges.

Question

Quizplus · Accepted Answer

A natural monopolist typically has high fixed costs and decreasing average costs. If the price is set equal to marginal cost, it may not cover the average total cost, leading to negative profits.

If the Government Regulates the Price That a Natural Monopolist