Questions: What is the socially desirable price for a natural monopoly to charge? The price at which the marginal benefit to the consumer is greater than the marginal cost of production. The price at which the marginal benefit to the consumer equals the marginal cost of production. The price at which average cost equals average revenue. The price at which the marginal benefit to the consumer is less than the marginal cost of production. A natural monopoly that attempts to charge the socially desirable price will invariably suffer an economic loss because average cost and marginal cost are equal. average cost is lower than marginal cost. marginal cost is equal to zero. average cost is higher than marginal cost.

The answer to the first question is the second one: The price at which the marginal benefit to the consumer equals the marginal cost of production.

Explanation for each option:

1. The price at which the marginal benefit to the consumer is greater than the marginal cost of production.

   • This option is incorrect because if the marginal benefit is greater than the marginal cost, it indicates that more of the good should be produced to maximize social welfare. The socially desirable price is where these two are equal, not where the benefit exceeds the cost.

2. The price at which the marginal benefit to the consumer equals the marginal cost of production.

   • This option is correct. In economic theory, the socially optimal price is where the marginal benefit equals the marginal cost. This ensures that resources are allocated efficiently, maximizing total welfare.

3. The price at which average cost equals average revenue.

   • This option is incorrect because it describes a situation where the firm breaks even, but it does not necessarily lead to an efficient allocation of resources from a societal perspective.

4. The price at which the marginal benefit to the consumer is less than the marginal cost of production.

   • This option is incorrect because it suggests that the cost of producing an additional unit is greater than the benefit derived from it, which would lead to a reduction in total welfare.

For the second question, the answer is: average cost is higher than marginal cost.

Explanation:

• Average cost and marginal cost are equal.

  • This is incorrect because, in a natural monopoly, average costs typically decrease as output increases due to economies of scale, meaning they are not equal to marginal costs.

• Average cost is lower than marginal cost.

  • This is incorrect because, in a natural monopoly, average costs are generally higher than marginal costs due to the high fixed costs and economies of scale.

• Marginal cost is equal to zero.

  • This is incorrect because marginal cost is rarely zero in practice, especially in a natural monopoly where there are significant production costs.

• Average cost is higher than marginal cost.

  • This is correct. In a natural monopoly, the average cost is typically higher than the marginal cost due to the high fixed costs and the nature of economies of scale. Charging a price equal to marginal cost would not cover the average cost, leading to an economic loss.