Which of the following is true of a natural monopoly that is regulated by the average-cost pricing strategy?
A)The natural monopoly will earn positive economic profit.
B)The natural monopoly will produce less output than an unregulated monopoly.
C)The equilibrium price of the natural monopoly is now the same as the competitive price.
D)A part of the deadweight loss from an unregulated monopoly is eliminated.

Question

Quizplus · Accepted Answer

The average-cost pricing strategy sets the price at the average cost of production, which ensures that the natural monopoly earns only a normal rate of return and eliminates the deadweight loss associated with an unregulated monopoly. However, this does not guarantee positive economic profit or output levels comparable to a competitive market.

Which of the Following Is True of a Natural Monopoly