Question 1

For a natural monopoly, marginal cost

Accepted Answer

A)   Intersects average total cost at zero profit.
B)   Equals price at a profitable output level.
C)   Equals marginal revenue above the demand curve.
D)   Is always below average total cost in the relevant range of production.

Question 2

Deregulation of the cable TV market by the Telecommunications Turns Act of 1996 resulted in

Accepted Answer

A)   Lower prices and better service.
B)   Little change in either prices or service.
C)   Significantly higher prices.
D)   Reductions in prices but little change in the level of service.

Question 3

If the government wants a natural monopolist to achieve allocative efficiency, the government should

Accepted Answer

A)   Subsidize the firm and require marginal cost pricing.
B)   Ensure that the firm produces at full capacity.
C)   Regulate the firm so that it produces the output level at which economic profit is zero.
D)   Use price ceilings so the firm will earn a normal profit.

Question 4

Profit regulation occurs when regulation requires the natural monopolist to set

Accepted Answer

A)   Price equal to average total cost.
B)   Price equal to marginal cost.
C)   Marginal revenue equal to average total cost.
D)   Price equal to average variable cost.

Question 5

Deregulation in railroads, airlines, and telephone service has generally resulted in higher prices.

Accepted Answer

A) True 
 B)False

Question 6

Discuss the effects of technological change on the elimination of natural monopolies.

Accepted Answer

In the telecommunications industry, the ...

Question 7

One consequence of airline deregulation in the 1980s was an increased concentration ratio.

Accepted Answer

A) True 
 B)False

Question 8

Deregulation of the railroad, airline, and electricity industries has yielded substantial benefits: more competition, lower prices, and improved services.

Accepted Answer

A) True 
 B)False

Question 9

Cross-subsidization occurs when

Accepted Answer

A)   Profits on one product are used to subsidize low prices on another product.
B)   The government subsidizes production of a product.
C)   Profitable firms in an industry are forced to share their profits with the unprofitable firms.
D)   Firms are required to subsidize government research and development that may benefit their industry. Cross-subsidization is the use of high prices and profits on one product to subsidize low prices on another product.

Question 10

An industry in which one firm can achieve economies of scale over the entire range of market supply is a

Accepted Answer

A)   Contestable market.
B)   Kinked demand curve oligopoly.
C)   Natural monopoly.
D)   Perfectly competitive market.

Question 11

4, Q4. B)  P0, Q1. C)  P3, Q3. " class="answers-bank-image d-inline" rel="preload" > The socially optimal price and output combination in Figure 27.1 is

Accepted Answer

A)   P4, Q4.
B)   P0, Q1.
C)   P3, Q3.

Question 12

A natural monopoly

Accepted Answer

A)   Has low barriers to entry.
B)   Has high marginal costs.
C)   Charges a lower price than a competitive firm.
D)   Will charge high prices if unregulated.

Question 13

According to the article "Financial Woes Heating Up," California utilities

Accepted Answer

A)   Control the production of electricity but not the distribution.
B)   Experienced rising wholesale prices for electricity while retail rates were subject to a price ceiling.
C)   Experienced excess capacity and falling retail prices.
D)   Were taken over by the state due to bankruptcies.

Question 14

A natural monopoly can purposely increase its cost of production by

Accepted Answer

A)   Using its own unregulated subsidiary to inflate its cost.
B)   Substituting cheaper inputs.
C)   Keeping marginal costs low.
D)   Using government subsidies to offset losses.

Question 15

Before the deregulation in telecommunications, AT&T charged higher rates on long-distance service in order to make local service rates lower.Such a practice is an example of

Accepted Answer

A)   Price discrimination because different prices were charged for the same service.
B)   The pricing of public goods.
C)   Cross-subsidization of local phone service.
D)   Predatory price cutting to eliminate local telephone companies.

Question 16

Adherence to marginal cost pricing in Figure 27.1 will necessitate

Accepted Answer

A)   Taxing away the economic profits that will be realized.
B)   Giving the firm a subsidy.
C)   Regulation of the firm's profits.

Question 17

Profit regulation of a natural monopoly is achieved when

Accepted Answer

A)   P = ATC.
B)   P = MC.
C)   MR = MC.
D)   MR = minimum ATC.

Question 18

Suppose the quality of service provided by a newly regulated firm begins to deteriorate soon after regulation is enforced.Which of the following types of regulation is most likely being used?

Accepted Answer

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

Question 19

All of the costs associated with regulation are borne by the firms being regulated.

Accepted Answer

A) True 
 B)False

Question 20

One In the News article is titled "Bell Monopolies Push to Disconnect Competition." If rivals are required to pay an access fee to the local phone monopoly in order to enter a market and the fee is high enough, the fee

Accepted Answer

A)   Is a barrier to entry.
B)   Causes cross-subsidization.
C)   Creates an oligopoly.
D)   Causes profit sharing.

Exam 13: Natural Monopolies: Deregulation

For a natural monopoly, marginal cost

Correct AnswerverifiedShow Answer

Deregulation of the railroad, airline, and electricity industries has yielded substantial benefits: more competition, lower prices, and improved services.

Correct AnswerverifiedShow Answer

According to the article "Financial Woes Heating Up," California utilities

Correct AnswerverifiedShow Answer

A natural monopoly

Correct AnswerverifiedShow Answer

Suppose the quality of service provided by a newly regulated firm begins to deteriorate soon after regulation is enforced.Which of the following types of regulation is most likely being used?

Correct AnswerverifiedShow Answer

Adherence to marginal cost pricing in Figure 27.1 will necessitate

Correct AnswerverifiedShow Answer

Deregulation in railroads, airlines, and telephone service has generally resulted in higher prices.

Correct AnswerverifiedShow Answer

Cross-subsidization occurs when

Correct AnswerverifiedShow Answer

The socially optimal price and output combination in Figure 27.1 is

Correct AnswerverifiedShow Answer

A natural monopoly can purposely increase its cost of production by

Correct AnswerverifiedShow Answer

Discuss the effects of technological change on the elimination of natural monopolies.

Correct AnswerverifiedIn the telecommunications industry, the ...View AnswerShow Answer

Deregulation of the cable TV market by the Telecommunications Turns Act of 1996 resulted in

Correct AnswerverifiedShow Answer

An industry in which one firm can achieve economies of scale over the entire range of market supply is a

Correct AnswerverifiedShow Answer

If the government wants a natural monopolist to achieve allocative efficiency, the government should

Correct AnswerverifiedShow Answer

One In the News article is titled "Bell Monopolies Push to Disconnect Competition." If rivals are required to pay an access fee to the local phone monopoly in order to enter a market and the fee is high enough, the fee

Correct AnswerverifiedShow Answer

One consequence of airline deregulation in the 1980s was an increased concentration ratio.

Correct AnswerverifiedShow Answer

Profit regulation occurs when regulation requires the natural monopolist to set

Correct AnswerverifiedShow Answer

Profit regulation of a natural monopoly is achieved when

Correct AnswerverifiedShow Answer

All of the costs associated with regulation are borne by the firms being regulated.

Correct AnswerverifiedShow Answer

Before the deregulation in telecommunications, AT&T charged higher rates on long-distance service in order to make local service rates lower.Such a practice is an example of

Correct AnswerverifiedShow Answer

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In the telecommunications industry, the ...
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