When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly
A)will experience a loss.
B)will experience a price below average total cost.
C)may rely on a government subsidy to remain in business.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

When regulators use marginal-cost pricing, the price is set equal to the marginal cost, which is typically below the average total cost for a natural monopoly. This results in the monopoly experiencing a loss, as the price does not cover the average total cost, and may require a government subsidy to continue operating.

When Regulators Use a Marginal-Cost Pricing Strategy to Regulate a Natural