Use the following to answer question:
Figure: Total Surplus with a Regulated Natural Monopolist
-(Figure: Total Surplus with a Regulated Natural Monopoly) Look at the figure Total Surplus with a Regulated Natural Monopolist. The natural monopoly:
A) would incur an economic profit if regulated to produce where price is less than marginal cost.
B) would incur an economic profit if regulated to charge a price equal to average total cost.
C) generates more consumer surplus than an unregulated monopolist if regulated to produce where price equals average total cost.
D) generates more consumer surplus than an unregulated monopolist if regulated to produce where price is above the average total cost.

Question

Use the following to answer question:
Figure: Total Surplus with a Regulated Natural Monopolist 
-(Figure: Total Surplus with a Regulated Natural Monopoly) Look at the figure Total Surplus with a Regulated Natural Monopolist. The natural monopoly:
A) would incur an economic profit if regulated to produce where price is less than marginal cost. 
B) would incur an economic profit if regulated to charge a price equal to average total cost. 
C) generates more consumer surplus than an unregulated monopolist if regulated to produce where price equals average total cost. 
D) generates more consumer surplus than an unregulated monopolist if regulated to produce where price is above the average total cost.

Quizplus · Accepted Answer

When a natural monopoly is regulated to produce where price equals average total cost, it generates more consumer surplus compared to an unregulated monopolist, as it allows for a higher quantity of output at a lower price.

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