Question 1

1. B)  P2. C)  P3. " class="answers-bank-image d-inline" rel="preload" > If regulation of the firm called for it to earn only a normal profit or rate of return in Figure 27.1, the regulatory agency should set the price at

Accepted Answer

A)   P1.
B)   P2.
C)   P3.

Question 2

Production efficiency under a natural monopoly is achieved

Accepted Answer

A)   Where marginal cost equals demand.
B)   Where marginal revenue equals marginal cost.
C)   Where marginal cost is minimized.
D)   At capacity production where ATC is at a minimum.

Question 3

B only. B)  QC. C)  QA only. D)  QA or QB, but not QC" class="answers-bank-image d-inline" rel="preload" > Output regulation for the natural monopoly in Figure 27.2 would result in an output of

Accepted Answer

A)   QB only.
B)   QC.
C)   QA only.
D)   QA or QB, but not QC

Question 4

Deregulation of the telephone industry has reduced price competition and the volume of telephone service, ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 5

Market failure

Accepted Answer

A)   Occurs whenever the government intervenes in the market mechanism.
B)   Occurs whenever the government pursues laissez-faire policies.
C)   Occurs whenever an imperfection in the market mechanism prevents optimal outcomes.
D)   Never occurs.

Question 6

The human and capital resources used by businesses to satisfy regulatory requirements are known as compliance costs.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is a form of government intervention that is designed to correct market failures?

Accepted Answer

A)   Antitrust laws.
B)   Laissez faire.
C)   Public goods.
D)   Merit goods.

Question 8

If entry barriers into a monopolized market are kept low,

Accepted Answer

A)   Market power increases.
B)   A market is contestable.
C)   Government failure exists.
D)   A duopoly will be created.

Question 9

What is the main structural advantage of a natural monopoly? What is the price-output combination of an unregulated natural monopoly?

Accepted Answer

A natural monopoly has an ATC curve that...

Question 10

CPDDC. B)  Losses equal to PA0qAA. C)  Profits equal to PD0qCD. " class="answers-bank-image d-inline" rel="preload" > The unregulated monopoly in Figure 27.2 will experience

Accepted Answer

A)   Profits equal to PCPDDC.
B)   Losses equal to PA0qAA.
C)   Profits equal to PD0qCD.

Question 11

If a natural monopoly is forced to set a price consistent with price efficiency, it will

Accepted Answer

A)   Set price above marginal cost.
B)   Earn a profit on every unit of output produced.
C)   Set price equal to the ATC of production.
D)   Incur a loss on every unit of output produced.

Question 12

Which of the following is an example of government failure?

Accepted Answer

A)   Too much regulation resulting in wasted resources.
B)   Public goods.
C)   Externalities.
D)   Merit goods.

Question 13

A natural monopoly is a desirable market structure because

Accepted Answer

A)   It allows the producer to earn greater profit than is possible under competition.
B)   It allows the producer to deliver a higher-quality product to the market.
C)   It allows the producer to deliver products to the market at the lowest possible cost.
D)   The jobs it creates pay higher wages than those in a competitive industry.

Question 14

When there is market failure

Accepted Answer

A)   Government intervention is always beneficial.
B)   A laissez-faire approach is the best policy.
C)   Government intervention is beneficial only in the case of natural monopolies.
D)   Government intervention is beneficial only when the marginal benefit of intervention exceeds the marginal cost.

Question 15

A and charge PA. B)  QB and charge PB. C)  C. QC and charge PD. D)  QC and charge PC." class="answers-bank-image d-inline" rel="preload" > In Figure 27.2, profit regulation will lead the natural monopoly to produce

Accepted Answer

A)   QA and charge PA.
B)   QB and charge PB.
C)   C. QC and charge PD.
D)   QC and charge PC.

Question 16

A natural monopolist can produce total industry output more efficiently than several smaller but competitive firms.

Accepted Answer

A) True 
 B)False

Question 17

State the advantage and the disadvantage of output regulation.

Accepted Answer

The advantage of output regula...

Question 18

For a natural monopolist, if costs start to climb once it is subject to government regulation, then it is most likely facing

Accepted Answer

A)   Cost regulation.
B)   Profit regulation.
C)   Output regulation.
D)   Price regulation.

Question 19

Regulated monopolies that are allowed a specific profit rate have an incentive to hold down costs.

Accepted Answer

A) True 
 B)False

Question 20

The major aim of government regulation is to

Accepted Answer

A)   Control the structure of an industry.
B)   Alter industry behavior.
C)   Prevent monopolies from forming.
D)   Restrict competition.

Exam 13: Natural Monopolies: Deregulation

If entry barriers into a monopolized market are kept low,

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If regulation of the firm called for it to earn only a normal profit or rate of return in Figure 27.1, the regulatory agency should set the price at

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For a natural monopolist, if costs start to climb once it is subject to government regulation, then it is most likely facing

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Regulated monopolies that are allowed a specific profit rate have an incentive to hold down costs.

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Production efficiency under a natural monopoly is achieved

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Market failure

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When there is market failure

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Output regulation for the natural monopoly in Figure 27.2 would result in an output of

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If a natural monopoly is forced to set a price consistent with price efficiency, it will

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A natural monopoly is a desirable market structure because

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What is the main structural advantage of a natural monopoly? What is the price-output combination of an unregulated natural monopoly?

Correct AnswerverifiedA natural monopoly has an ATC curve that...View AnswerShow Answer

Deregulation of the telephone industry has reduced price competition and the volume of telephone service, ceteris paribus.

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The unregulated monopoly in Figure 27.2 will experience

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Which of the following is an example of government failure?

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Which of the following is a form of government intervention that is designed to correct market failures?

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A natural monopolist can produce total industry output more efficiently than several smaller but competitive firms.

Correct AnswerverifiedShow Answer

In Figure 27.2, profit regulation will lead the natural monopoly to produce

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The major aim of government regulation is to

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State the advantage and the disadvantage of output regulation.

Correct AnswerverifiedThe advantage of output regula...View AnswerShow Answer

The human and capital resources used by businesses to satisfy regulatory requirements are known as compliance costs.

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A natural monopoly has an ATC curve that...
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The advantage of output regula...
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