Use the information below to answer the following questions.
Fact 13.5.1
Cascade Springs Inc. is a natural monopoly that bottles water from a spring high in the Rocky Mountains. The total fixed cost it incurs is $80,000, and its marginal cost is 10 cents a bottle. The demand curve for Cascade Springs bottled water is shown in the following figure:

Figure 13.5.1
-Refer to Figure 13.5.1. Suppose the firm is regulated by the government that imposes marginal cost pricing. The price of a bottle of water is
A)$0.
B)$0.50.
C)$0.30.
D)$0.10.
E)$0.20.

Question

Use the information below to answer the following questions.
Fact 13.5.1
Cascade Springs Inc. is a natural monopoly that bottles water from a spring high in the Rocky Mountains. The total fixed cost it incurs is $80,000, and its marginal cost is 10 cents a bottle. The demand curve for Cascade Springs bottled water is shown in the following figure:
  
Figure 13.5.1
-Refer to Figure 13.5.1. Suppose the firm is regulated by the government that imposes marginal cost pricing. The price of a bottle of water is
A)$0. 
B)$0.50. 
C)$0.30. 
D)$0.10. 
E)$0.20.

Quizplus · Accepted Answer

Under marginal cost pricing, the firm sets the price equal to its marginal cost (10 cents a bottle in this case). Therefore, the price of a bottle of water would be $0.10. Option (D) is the correct choice.

Use the Information Below to Answer the Following Questions