Question

If regulators impose marginal-cost pricing on a natural monopoly, a possible problem is that.

Answer 1

If regulators impose marginal cost pricing on a natural monopoly, a possible problem is that the firm will lose money and exit the market.

What is marginal cost?

• The difference in total production costs caused by creating or producing one extra unit is known as the marginal cost in economics.
• Divide the variation in production costs by the variation in quantity to determine marginal cost. Finding the point at which an organization can realize economies of scale to improve production and overall operations is the goal of marginal cost analysis.
• The producer may make money if the marginal cost of producing one extra unit is less than the price per unit.

The overall costs involved in producing an additional good are what is referred to as the marginal cost. Therefore, it can be evaluated by changes in the costs associated with each extra unit.

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