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 would an unregulated monopolist if regulated to produce where price equals average total cost.D) generates more consumer surplus than would an unregulated monopolist if regulated to produce where marginal cost equals marginal revenue.

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Karen Posadas · Accepted Answer

Final Answer : C, Explanation :  The natural monopoly generates more consumer surplus than an unregulated monopolist if it is regulated to produce where price equals average total cost. This is because in a natural monopoly, the firm's average total cost is declining over the entire range of output. Therefore, if the firm sets price equal to average total cost, it will be producing where price is equal to marginal cost, resulting in an output that is socially optimal and generates more consumer surplus compared to an unregulated monopolist.

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