"Converts goo into monsters that have been unlocked in the Monster Locker."
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A monster factory. The Hatchery produces monsters depending what you choose for a variant cost of Goo. Upgrading the Hatchery increases the capacity to make more monsters, useful for spawning one monster repeatedly. It's not important to protect the Hatchery as the spawning monsters cannot be hindered and can be used for distracting monsters outside the yard.
An update on April 17, 2014, removed 3 of 4 Hatcheries in favor of 1 consolidated Hatchery.