If a regulatory authority requires a decreasing-average-cost natural monopoly to charge its average cost and produce...

If a regulatory authority requires a decreasing-average-cost natural monopoly to charge its average cost and produce the quantity demanded at that price, the monopolist will likely not be able to cover all of its economic costs (including opportunity costs).

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Expert Solution

This statement is true

For a natural monopoly average cost curve lies above the marginal cost curve. When the regulated price is equal to the marginal cost it means that the price is less than the average total cost. It might be greater than the average variable cost but due to the fact that there are economic losses, it is true that it is not able to cover all of its economic costs (including opportunity costs).

Rahul Sunny answered 1 year ago

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