MC PRICING~
dominant firm is one which is similar to a monopoly market structure where there is a single seller of a unique product with no close substitutes and there are high barriers to entry. e.g. a producer of public utilities (water, electricity), railway services (SMRT) and computer operating system (microsoft windows)
which measure is the best depends on the objective of the govt. i.e. to achieve allocative efficiency, equity, or improving consumer welfare. it also depends on whether we are regulating a monopoly or natural monopoly. for regulating natural monopoly, the govt can consider MC pricing, AC pricing or other forms of regulation.

MC pricing
an MC pricing could be used by the govt to regulate a natural monopoly (e.g. provider of public utitlities) if it aims to achieve allocative efficiency. a natural monopoly is one where there are high start-up costs which are largely in the form of fixed costs. natural monopoly exists because the market size because the market size is small relative to the size of the perfectis greater than MC of production. consumers are willing to pay a price greater than what the alternative goods coild be produced using the same resources. this suggests that there is unerproduction of the right type of good. to achieve allocative efficiency, govt could require the monopolist to produce at P = MC at a larger output Qmc and charges a lower price Pmc.
at this output, consumers pay P=MC. this implies that there is allocative efficiency.
one problem arising from the use of MC pricing is that the natural monopolist will incur a loss. this is shown by shaded area.