11. One method that is used to regulate prices for natural monopolies is "rate-base pricing." A problem with this method of regulation is that:
  1. firms still incur losses and so will tend to go out of business.
  2. it requires that the firm be subsidized by tax payers who don't use the product.
  3. it encourages over-investment in capital relative to what is efficient.
  4. it is the same as the profit maximizing price, so the firm is not allocatively efficient.
  5. it is the same as the two-part tariff, so it is politically unpopular.

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