Which of the following explains why the marginal cost pricing rule results in an economic loss for a natural monopoly?
A) The ATC curve is downward sloping throughout the relevant range, therefore the MC is lower than the ATC.
B) The demand curve is downward sloping, therefore price falls as quantity increases.
C) The MC is constant and equal to price.
D) Because output is determined by setting MC equal to the price, consumer surplus is maximized.
E) The firm's MR is always less than its price.

Question

Quizplus · Accepted Answer

The marginal cost (MC) pricing rule can result in an economic loss for a natural monopoly because the average total cost (ATC) curve is downward sloping throughout the relevant range. This means that at the quantity where MC equals price, the price is below ATC, leading to losses.

Which of the Following Explains Why the Marginal Cost Pricing