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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 just covers average total cost, the water works will:
A) earn profits.
B) break even.
C) incur losses.
D) have a large producer surplus.

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 just covers average total cost, the water works will:
A) earn profits. 
B) break even. 
C) incur losses. 
D) have a large producer surplus.

Quizplus · Accepted Answer

When a natural monopoly is required to charge a price that just covers average total cost, it will break even, as the price equals the average total cost, covering all expenses without generating profit or loss.

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