Does it have an incentive to reduce its average cost

Reference no: EM131021602

Consider the natural monopoly shown in Figure. Assume that the government regulatory agency sets the regulated price, PR, at the level of average total cost at which the demand curve intersects the ATC curve. If the firm knows that it will always be able to charge a price equal to its average total cost, does it have an incentive to reduce its average cost? Briefly explain.

Reference no: EM131021602

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