Use the information below to answer the following questions.
Fact 12.5.1
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 12.5.1
-Refer to Figure 12.5.1.Suppose the government regulates the firm with average cost pricing.The price of a bottle of water is
A)$0.
B)$0.50.
C)$0.30.
D)$0.10.
E)$0.20.

Question

Use the information below to answer the following questions.
Fact 12.5.1
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 12.5.1
-Refer to Figure 12.5.1.Suppose the government regulates the firm with average cost pricing.The price of a bottle of water is
A)$0. 
B)$0.50. 
C)$0.30. 
D)$0.10. 
E)$0.20.

Quizplus · Accepted Answer

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

Use the Information Below to Answer the Following Questions