Question

Another option is to require average cost pricing. Is this

efficient? What incentives does this create for the natural
monopolist?

Answer 1

Requiring average cost pricing can be efficient in certain situations, particularly when a natural monopolist has high fixed costs and low marginal costs. This can help prevent the monopolist from charging excessively high prices and can promote competition. However, it can also create disincentives for the natural monopolist to invest in new technology or improve efficiency, as they may not be able to fully recoup their costs. As with any policy, there are pros and cons to consider.