Since natural monopolies have a declining average-cost curve,what effect would regulating natural monopolies by setting price equal to marginal cost have
A)It would cause the monopolist to operate at a loss.
B)It would result in a less than optimal total surplus.
C)It would maximize producer surplus.
D)It would encourage research in order to recoup lost profits.

Question

Quizplus · Accepted Answer

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

Since Natural Monopolies Have a Declining Average-Cost Curve,what Effect Would