PRICE Marginal Cost Average Total Cost Marginal Revenue Demand QUANTITY The graph above shows the cost and revenue curves for a natural monopoly. Consider the following two policies for regulating this natural monopoly Policy I: Require the monopoly to set quantity and price where demand equals marginal cost. Policy II: Require the monopoly to set quantity and price where demand equals average total cost. Which of the following is true of these policies? Both would result in the same level of output and price. Both would result in an inefficient allocation of resources relative to the unregulated result Policy I would result in a lower level of output than would Policy II. Policy I would result in a higher price than would Policy II. Policy I might require the payment of a subsidy to the firm