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Exam 12: Economic Efficiency and Public Policy

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Question 61

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Regulation can reduce the profits of a natural monopoly by imposing a per-unit output tax (rather than directly regulating price) .Such a tax would cause the monopolist's 1) average total cost curve to shift upward; 2) marginal cost curve to shift upward; 3) demand curve to shift to the left.

A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 2 and 3

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Question 62

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Choose the statement that best compares the long-run equilibrium of a competitive industry with that in a monopolized industry (with a single price) .

A) Resources will be allocated efficiently in both the competitive and monopolized industries.
B) Allocative efficiency will be achieved in the competitive,but not the monopolized industry.
C) Allocative efficiency is not possible in either industry.
D) Allocative efficiency will be achieved in the monopolized,but not the competitive industry.
E) It is not possible to make this comparison because firms in a competitive industry operate only in the short run.

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Question 63

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Consider a natural monopoly that is producing an output level such that it is experiencing decreasing returns to scale.If government policy requires the firm to set price equal to marginal cost,

An economy in which there are no market failures and all industries are in a competitive long-run equilibrium is one where 1.allocative efficiency is achieved; 2.the economy is on the production possibilities boundary; 3.there is no incentive for firms to enter or leave industries.

Consider three firms,A,B and C,all producing kilos of potatoes (per year) in a perfectly competitive market.The diagrams below show marginal cost curves for each of the three firms. FIGURE 12-1 -Refer to Figure 12-1.Suppose each of Firms A,B and C are producing 500 kilos of potatoes.Keeping total output unchanged,what level of output should each firm be producing such that the industry is productively efficient?

The diagram below shows cost and revenue curves for a natural monopoly producing electricity.Price is dollars per kilowatt hour and quantity is kilowatt hours per day. FIGURE 12-7 -Refer to Figure 12-7.Suppose this firm is being regulated using a policy of average-cost pricing.The resulting price and output would be ________ per kwh and ________ kwh per day.

The diagram below shows the market demand curve and the cost curves for a single firm. FIGURE 12-6 -Refer to Figure 12-6.Suppose this firm is a government-owned natural monopoly and imposes a price so as to achieve allocative efficiency in this market.The amount of tax revenue that the government must raise elsewhere in the economy to offset the losses of this firm is represented by the area

The production possibilities boundary shows possible combinations of guns and butter that can be produced by a country.The lower diagram shows demand and supply for butter. FIGURE 12-2 -Refer to Figure 12-2.Suppose this economy is allocatively efficient at Q₁ units of butter.Now suppose there is an increase in demand for butter from D to D₁.After this shift in demand,

The diagram below shows supply,demand,and quantity exchanged of Monday matinee movie tickets.Assume it is a perfectly competitive market. FIGURE 12-4 -Refer to Figure 12-4.Suppose a disequilibrium price of $7.50 per movie ticket is imposed on this market.The total economic surplus is now ________,which is ________ than the total economic surplus generated at the allocatively efficient level of output.

The objective of government regulation and competition policy can be described as a means to

Allocative efficiency is actively sought

If an economy is productively inefficient,it could improve its situation by

Consider a regulated natural monopoly,such as an electricity distribution company,that faces falling long-run average costs.If it is forced to price its output at average cost it will provide

The diagram below shows supply,demand,and quantity exchanged of Monday matinee movie tickets.Assume it is a perfectly competitive market. FIGURE 12-4 -Refer to Figure 12-4.Suppose a disequilibrium price of $7.50 per movie ticket is imposed in this market.The consumer surplus becomes ________ and the producer surplus becomes ________.

Choose the statement that best describes the dilemma facing the regulator of a natural monopoly.

In general,which of the following statements guides policymakers with respect to a natural monopoly? The firm

Consider the efficiency of various market structures and complete the following sentence.The larger the minimum efficient scale of firms,ceteris paribus,the

The diagram below shows the demand and supply curves in a perfectly competitive market. FIGURE 12-5 -Refer to Figure 12-5.If output in this market were Q_3,the loss in total economic surplus relative to the competitive equilibrium would be illustrated by area

An allowable defence for a merger according to Canada's Competition Bureau is that

Consider the following information for a regional cable television service provider that is a natural monopoly and has a U-shaped long-run average cost curve.(Assume the service provided is basic cable and units are household connections.) - minimum LRAC = $9.00 per month - minimum efficient scale = 2 million units - current output = 2.3 million units - LRAC at current output = $10.25 per month If this firm is currently being regulated and is following an average-cost pricing policy,the price of the service is ________ per month.