If the regulator institutes average-cost pricing in a natural monopoly market, then:
A) the firm makes zero economic profit.
B) the firm has an incentive to produce at minimum cost.
C) the marginal benefit to the consumer is less than marginal cost to the firm.
D) firms in the market will produce at the efficient level.
E) consumer surplus in the market is maximized.

Question

Quizplus · Accepted Answer

When average-cost pricing is implemented, the price is set equal to the average total cost, allowing the firm to cover all its costs, including a normal profit, resulting in zero economic profit.

If the Regulator Institutes Average-Cost Pricing in a Natural Monopoly