Asked by Nathan Perrine on May 05, 2024
Verified
When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly
A) will experience positive profit.
B) will experience a price above average total cost.
C) does not need a government subsidy to remain in business.
D) will experience a loss.
Marginal-Cost Pricing
A pricing strategy where the price of a good or service is equal to the incremental cost to produce one more unit of a good.
Government Subsidy
A financial contribution provided by the government to support industries or activities beneficial to the public interest, aimed at reducing their costs or encouraging more production and consumption.
- Develop an understanding of the ideas surrounding marginal cost, average cost, and fixed costs in relation to monopolies and natural monopolies.
- Explore the importance and outcome of antitrust provisions and government meddling in the operations of monopolies and the competitive landscape of markets.
Verified Answer
EM
Elizabeth MartellMay 12, 2024
Final Answer :
D
Explanation :
Marginal-cost pricing for a natural monopoly often results in prices that are below the average total cost, leading to losses for the monopoly. This is because the natural monopoly's average total cost curve is typically decreasing due to economies of scale.
Learning Objectives
- Develop an understanding of the ideas surrounding marginal cost, average cost, and fixed costs in relation to monopolies and natural monopolies.
- Explore the importance and outcome of antitrust provisions and government meddling in the operations of monopolies and the competitive landscape of markets.