What would the problem be if the government forced a natural monopoly to set a price equal to its marginal cost? a. the firm will make excessive profits b. consumers buy less of the good than is efficient c. consumers buy more of the good than is efficient d. the firm will make losses and exit the market

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
100%

What would the problem be if the government forced a natural monopoly to set a price equal to its marginal cost?

a. the firm will make excessive profits

b. consumers buy less of the good than is efficient

c. consumers buy more of the good than is efficient

d. the firm will make losses and exit the market

 

Expert Solution
Introduction

A natural monopoly is a firm in such a industry which requires very very large initial investment, which results in very large fixed costs.
As output increases, the average cost keeps on falling.
For natural monopolies, marginal cost is below the average cost.

Such firms are called natural monopoly because no other firm dares to make such huge investments and enter the market. Thus the existing firm becomes a monopoly.

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Monopoly
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education