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Figure: Water Works
-(Figure: Water Works) Look at the figure Water Works, which describes a small town's water works, a natural monopoly. If regulators require the water works to charge the price that eliminates deadweight loss, consumer surplus will be:
A) $1,600.
B) $1,400.
C) $1,000.
D) $800.

Question

Use the following to answer questions:
Figure: Water Works 
-(Figure: Water Works) Look at the figure Water Works, which describes a small town's water works, a natural monopoly. If regulators require the water works to charge the price that eliminates deadweight loss, consumer surplus will be:
A) $1,600. 
B) $1,400. 
C) $1,000. 
D) $800.

Quizplus · Accepted Answer

When regulators set the price to eliminate deadweight loss, the price is set equal to marginal cost. This maximizes consumer surplus, which is the area under the demand curve and above the price level. In this scenario, the consumer surplus is $1,600.

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