Asked by Mitchel Rozwadowski on Jul 08, 2024
Verified
When a natural monopoly is regulated to charge a price equal to average total cost,producer surplus decreases,but total surplus increases.
Natural Monopoly
A market situation in which a single company can provide goods or services at a lower cost than any competitor, often due to economies of scale.
Average Total Cost
The total cost of production divided by the number of units produced, used to analyze cost behaviors in economics.
Producer Surplus
The difference between the amount producers are willing and able to sell a product for and the actual amount they receive, often representing profit.
- Analyze the effects of regulation on natural monopolies, focusing on public ownership, pricing, and consumer welfare.
Verified Answer
YK
Yasmin KhaleelJul 11, 2024
Final Answer :
True
Explanation :
When a natural monopoly is regulated to charge a price equal to average total cost, it means that the price is set at a level where the firm earns zero economic profit. This would decrease producer surplus, as the firm would no longer be earning a profit above its costs. However, total surplus would increase because the price would be lower than what the firm would have charged without regulation, resulting in a larger consumer surplus.
Learning Objectives
- Analyze the effects of regulation on natural monopolies, focusing on public ownership, pricing, and consumer welfare.