The figure above shows a natural monopoly.
-In the figure above,if the firm is regulated using a marginal cost pricing rule,the consumer surplus created is equal to the area of
A) ABG.
B) ACF.
C) BCFG.
D) BCE.
E) None of the above because there is no consumer surplus created.

Question

The figure above shows a natural monopoly.
-In the figure above,if the firm is regulated using a marginal cost pricing rule,the consumer surplus created is equal to the area of
A) ABG. 
B) ACF. 
C) BCFG. 
D) BCE. 
E) None of the above because there is no consumer surplus created.

Quizplus · Accepted Answer

When a natural monopoly is regulated using marginal cost pricing, the price decreases to the point where it is equal to the marginal cost. In the figure above, this means that the price will be set at point C. 
Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay. In this case, consumer surplus is represented by the area under the demand curve (above the price line) and to the left of the quantity sold. 
Therefore, consumer surplus can be calculated as the area of triangle ACF.

The Figure Above Shows a Natural Monopoly