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
What would the problem be if the government forced a natural monopoly to set a
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
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.
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