Use the information below to answer the following questions.
Fact 13.5.1
Cascade Springs Inc. is a natural monopoly that bottles water from a spring high in the Rocky Mountains. The total fixed cost it incurs is $80,000, and its marginal cost is 10 cents a bottle. The demand curve for Cascade Springs bottled water is shown in the following figure:

Figure 13.5.1
-Refer to Figure 13.5.1. Suppose the government regulates the firm with average cost pricing. What is the price?
A)$0 a bottle
B)$0.50 a bottle
C)$0.30 a bottle
D)$0.10 a bottle
E)$0.20 a bottle

Question

Use the information below to answer the following questions.
Fact 13.5.1
Cascade Springs Inc. is a natural monopoly that bottles water from a spring high in the Rocky Mountains. The total fixed cost it incurs is $80,000, and its marginal cost is 10 cents a bottle. The demand curve for Cascade Springs bottled water is shown in the following figure:
  
Figure 13.5.1
-Refer to Figure 13.5.1. Suppose the government regulates the firm with average cost pricing. What is the price?
A)$0 a bottle 
B)$0.50 a bottle 
C)$0.30 a bottle 
D)$0.10 a bottle 
E)$0.20 a bottle

Quizplus · Accepted Answer

Average cost pricing means setting the price equal to the average cost. If the average cost is $0.20 a bottle, then the regulated price would be $0.20 a bottle.

Use the Information Below to Answer the Following Questions