What problem is caused by subsidizing a natural monopoly regulated using a marginal cost pricing rule?
A) The regulated firm ends up earning an economic profit.
B) Consumers pay too much for the product of the monopoly.
C) This policy is a two-part tariff, which creates inefficiency.
D) The taxes required to gain the revenue used as the subsidy result in a deadweight loss that subtracts from gains in efficiency which result from use of the marginal cost pricing rule.
E) The regulated firm goes out of business if it is subsidized.
D
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