Posted by cymber on .
A policy of average-cost pricing will intially ______ price for a natural monopoly, but as costs increase, price will _______.
A. increase; not change
B. decrease; increase
C. decrease; not change
D. increase; decrease
Do a little research, then take a shot.
Hint: Draw a picture of a natural monopolist; (Demand and MR curves, and AC and MC curves). The defining characteristic of a natural monopolist is that AC is declining for most (all) of any likely output. If AC is declining, what does that say about the position/shape of the MC curve?. At the point when AC starts to eventually rise, what does that say about the MC curve?