a. The term natural monopoly refers to an industry in which
only a single firm can operate at its.
b. A regulated natural monopoly that is subject to average-
cost pricing and operating on the downward- sloping
portion of its LRAC curve will earn profits. Since
price marginal cost, this outcome will not be
.
c. Consider a privately owned natural monopoly. Under
average-cost pricing regulation, it is likely this firm will
expand capacity and there will be too
socially desirable investment.
d. Marginal-cost pricing for a natural monopoly is an
efficient pricing system, but it leads to for the
firm if average costs are falling.
