In practice,placing a price control on a natural monopoly:
A) is easy and commonly practiced.
B) is difficult because of lack of information.
C) always creates the same outcome as public ownership of the industry.
D) is never a good idea.

Question

Quizplus · Accepted Answer

Placing a price control on a natural monopoly is difficult because there is a lack of information about the actual cost of production, so it is challenging to determine a fair price that covers the firm's costs while allowing for a reasonable profit margin. Additionally, setting a price below the natural monopoly's cost could result in the firm exiting the market or reducing output, which would harm consumers. However, public ownership of the industry is not always the same outcome as price controls, as it may lead to inefficiencies and lack of competition. Therefore, the best choice is B.

In Practice,placing a Price Control on a Natural Monopoly