In a natural monopoly, the government will try to set the price at which the demand...

In a natural monopoly, the government will try to set the price at which the demand curve intersects the monopolist's

		long-run marginal cost curve.
		long-run average total cost curve.
		long-run marginal revenue curve.
		long-run average fixed cost curve.

Expert Solution

Option 2

long-run average total cost curve.

A firm has a decreasing ATC curve over the demand of the market then it is called a natural monopoly.

A natural monopoly pricing rule is average cost pricing because the firm can earn normal profit. It is not efficient output as the efficient output is at MC=P but the MC<ATC at the production level.

The pricing policy provides a fair return to producer and obtain more output.

Rahul Sunny answered 2 years ago

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