When a natural monopoly is regulated to charge a price equal to average total cost,producer surplus decreases,but total surplus increases.

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When a natural monopoly is regulated to charge a price equal to average total cost, it means that the price is set at a level where the firm earns zero economic profit. This would decrease producer surplus, as the firm would no longer be earning a profit above its costs. However, total surplus would increase because the price would be lower than what the firm would have charged without regulation, resulting in a larger consumer surplus.

When a Natural Monopoly Is Regulated to Charge a Price