A monopolist is under investigation by the U.S. Department of Justice for violating antitrust laws. The government decides that the monopolist has a natural monopoly and that, if it is to keep the government's business, it must sell at a price equal to marginal cost. The monopolist says that it can't do that and hires you to explain to the government why it can't. How would you explain to the government?

Setting price equal to MC means the firm will be forced to produce too much output to stay in business. It must be allowed to lower the quantity produced to make a profit.

Setting price equal to MC means the firm will produce too little output to stay in business. It must be allowed to produce a greater quantity to make a profit.

Since MC is falling and always below ATC, the firm will not cover its costs if price equals marginal cost, P

Since MC is falling and always below ATC, price would be below marginal revenue.