Average cost regulation of a natural monopoly:
A) generates economic losses for the seller.
B) necessitates a subsidy payment to the firm.
C) creates incentives that tend to shift ATC curves in an upward direction.
D) imposes a price that is less than marginal cost.

Question

Quizplus · Accepted Answer

Average cost regulation can lead to inefficiencies and reduced incentives for cost control, potentially causing the average total cost (ATC) curves to shift upward as firms may not have strong incentives to minimize costs.

Average Cost Regulation of a Natural Monopoly