There is a deadweight loss if a natural monopoly is regulated to use
A) marginal cost pricing and if it is allowed to be unregulated and maximise its profit.
B) marginal cost pricing and if it is regulated to use average cost pricing.
C) average cost pricing and if it is allowed to be unregulated and maximise its profit.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

When a natural monopoly is unregulated and maximizes profit, it produces less than the socially optimal quantity, creating deadweight loss. Average cost pricing can also lead to deadweight loss as it may not align with marginal cost, leading to inefficiencies.

There Is a Deadweight Loss If a Natural Monopoly Is