Because natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would
A)cause the monopolist to operate at a loss.
B)result in a less than optimal total surplus.
C)maximize producer surplus.
D)result in higher profits for the monopoly.

Question

Quizplus · Accepted Answer

Setting price equal to marginal cost in a natural monopoly, where average costs are declining, would mean the price is below average cost, causing the monopolist to operate at a loss.

Because Natural Monopolies Have a Declining Average Cost Curve, Regulating