Economics · Natural Monopoly Regulation
In the context of natural monopoly regulation, which of the following statements about Average Cost (AC) Pricing versus Marginal Cost (MC) Pricing is INCORRECT?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1AC pricing and MC pricing yield identical output levels when the firm breaks even at minimum AC✓
- 2A two-part tariff can theoretically achieve both allocative efficiency and financial viability
- 3AC pricing eliminates the need for subsidy but results in allocative inefficiency (P > MC)
- 4MC pricing achieves allocative efficiency but requires a subsidy when AC > MC
Correct answer
AC pricing and MC pricing yield identical output levels when the firm breaks even at minimum AC
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