When natural monopolies are regulated so as to be efficient, the goal is to?
The typical solution is (D), but there are a range of solutions to this problem, here’s why: Where a monopoly exits, it will price to maximize revenue. This occurs where the revenue gained from the last item sold does not exceed the cost of producing that unit. MR=MC, where MC is below ATC. In a competitive market, price (P) will equal marginal cost (MC) — at a higher price, the firm will lose it’s market share to competitors, and at a lower price, the firm will sell more units but will lose money on each additional unit sold. So the monopolist’s price is (typically) higher than the competitive market price. (Exceptions can occur, but not in your case of a natural monopoly.) Price regulation (the type your problem refers to) aims to keep the firm in business, while reducing the deadweight loss created when price deviates from the market equilibrium. So, there will be more efficiency if the regulated price is lower than the monopolist’s price and equal or higher than the market euilibr
