If a Firm Is a Natural Monopoly, Competition from Other

question 265

Multiple Choice

If a firm is a natural monopoly, competition from other firms cannot be counted on to force price down to the level where the company earns zero economic profit. How are prices usually set in natural monopoly markets in the United States?

• A) Each natural monopoly is made a public franchise. The public franchise is then required to set its price equal to its marginal cost.
• B) Natural monopolies are privately owned, but prices proposed by the firms must be approved by the Antitrust Division of the Department of Justice.
• C) Natural monopolies are privately owned and allowed to set their own prices. Government regulation of the firms would result in greater deadweight losses.
• D) Local or state regulatory commissions usually set prices for natural monopolies.

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