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.
Regulated monopoly

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 subsidyentail?

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Monopoly price Fair-return Socially optimal price price ATC MC 6 MR Quantity