What is the problem with marginal cost pricing in the natural monopoly situation? How do regulatory agencies in the United States usually handle the problem?

What will be an ideal response?

If the firm is a natural monopoly, then long-run average costs are downward sloping over the entire range of demand, which implies marginal cost lies below average cost. If price equals marginal cost, price will be below average cost and the firm will earn economic losses. In the long run, it will go out of business, so marginal cost pricing is not feasible. Most regulatory agencies strive for average cost pricing so that the owners receive a normal rate of return on investment.