State True or False and justify your answer:

In the case of a natural monopoly (i.e. a firm whose average cost decreases as output increases due to large fixed and low marginal costs), the government should generally regulate the monopolist to charge a price equal to marginal cost.

The provided statement is true.

Unregulated monopoly firms might set prices meant to benefit them by maximizing profits, not paying attention to social interests. The government will ensure the demand and marginal costs are correctly balanced. This is because they will consider both the consumers and the interests generated by the company.

Additionally, this move is supposed to cater for instances where the market is competitive, and the issue of quantity should not be compromised. In such a case, consumers will be confident to purchase excellent quality from monopoly options at a favorable price. This will ensure proper resource allocation as there will be a balance between the consumers purchasing value and the marginal costs of production.