Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
To maintain market share and avoid losses
B
To maximize profit margins and shareholder value
C
To comply with government regulations that mandate price increases
D
To limit consumer access to the product and create scarcity
Understanding the Answer
Let's break down why this is correct
Answer
A natural monopoly might choose to set prices below their average total costs primarily to encourage wider access to their services or products. By lowering prices, they can attract more customers, which helps to increase overall demand. This approach can be beneficial because, in many cases, these monopolies provide essential services, such as water or electricity, that everyone needs. For example, if a utility company lowers its prices, more households can afford to use electricity, leading to a larger customer base and potentially higher total revenue over time. Ultimately, while this strategy may not be immediately profitable, it can help secure long-term sustainability and consumer satisfaction.
Detailed Explanation
A natural monopoly sets prices low to keep customers and avoid losing money. Other options are incorrect because Some might think that lowering prices is about making more profit; It's a common idea that companies must follow rules to raise prices.
Key Concepts
Natural monopolies
Pricing strategies
Allocative efficiency
Topic
Pricing in Natural Monopolies
Difficulty
medium level question
Cognitive Level
understand
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