Consider a regulated natural monopoly. If the regulatory commission wants to establish a fair-return price, then it should set a price ceiling where the demand curve crosses the monopoly's long-run:
A) marginal revenue curve.
B) average revenue curve.
C) marginal cost curve.
D) average cost curve.

Question

Quizplus · Accepted Answer

A fair-return price, also known as a rate-of-return regulation, aims to allow the monopoly to cover its costs and earn a normal profit but not excessive profit. This is achieved by setting the price where the demand curve intersects the monopoly's long-run average cost curve, ensuring the firm can recover its costs, including a normal return on its investment.

Consider a Regulated Natural Monopoly