Microeconomics 20th Edition by McConnell, Sean Flynn, Stanley Brue

Exercise 10

In view of the problems involved in regulating natural Monopolies, compare socially optimal (marginal-cost)pricing and fair-return pricing by referring again to Figure 10.9. Assuming that a government subsidy might be used to cover any loss resulting from marginal-cost pricing, which pricing policy would you favor Why What problems might such a subsidy entail