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Question
When regulating a natural monopoly, average cost pricing is usually used rather than marginal cost pricing because
A) average cost pricing allows the firm to earn a normal rate of return on investment, while marginal cost pricing leads to economic losses.
B) average cost pricing is more economically efficient than marginal cost pricing.
C) average cost pricing leads to lower profits than marginal cost pricing.
D) average cost pricing leads to a lower market price than marginal cost pricing.
Answer
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