A natural monopolist operates with a marginal cost MC = 10 and fixed cost FC = 500. Demand is given by P = 110 - 2Q. If a regulatory authority imposes marginal-cost pricing (P = M

Under marginal-cost pricing, P = MC. 110 - 2Q = 10, so Q = 50 and P = ₹10. Total revenue = 10 × 50 = ₹500 Total cost = FC + (MC × Q) = 500 + (10 × 50) = ₹1,000 Profit = 500 - 1,000 = -₹500 The firm incurs a loss of ₹500, so the regulator must pay a lump-sum subsidy of ₹500 for the firm to continue production. Notice that at P = MC the revenue only covers the variable cost (₹500). The fixed cost is never recovered. This is the standard difficulty with regulating a natural monopoly at marginal cost: the loss always equals the fixed cost. Option (D) ₹750 is the profit of the unregulated monopolist. For that case MR = MC gives 110 - 4Q = 10, so Q = 25 and P = 60. Profit = 1,500 - (500 + 250) = ₹750. It is a profit, not a subsidy. Hence the correct option is (C).