Question:

If the government regulates a natural monopoly and enforces an average cost pricing, what are the effects on output quantity and price compared to an unregulated natural monopoly?

A One is higher and one is lower under average cost pricing.

Explaination

Average cost pricing is meant to force a natural monopolist to reduce price to where the firm’s average total cost intersects the market demand curve. This results in higher output and a lower price than would prevail for an unregulated natural monopoly.