Question 1

For a natural monopoly,price efficiency means

Accepted Answer

A)  Price is set above marginal cost.
B)  Price is set equal to average total cost.
C)  Economics profits are earned.
D)  Price is set equal to marginal cost.E) A) and B)
F) C) and D)

Question 2

In cost-benefit analysis,regulatory intervention can be justified if the

Accepted Answer

A)  Marginal benefit of regulation exceeds its marginal cost.
B)  Economic cost of regulation exceeds the value of the improvements in government intervention.
C)  Value of government failure exceeds the value of market failure.
D)  Intervention improves market outcomes,regardless of costs.E) A) and C)
F) B) and D)

Question 3

Market failure can result from all of the following except

Accepted Answer

A)  Market power.
B)  Regulation.
C)  Restricted output.
D)  Monopoly.E) B) and C)
F) None of the above

Question 4

In the real world,the choice is between

Accepted Answer

A)  Perfect markets and perfect government intervention.
B)  Perfect markets and imperfect government intervention.
C)  Imperfect markets and perfect government intervention.
D)  Imperfect markets and imperfect government intervention.E) None of the above
F) C) and D)

Question 5

The administrative costs of regulation include the opportunity costs of the factors of production used by government to administer the regulations.

Accepted Answer

A) True 
 B)False

Question 6

The first major regulatory target in the United States was

Accepted Answer

A)  Airlines.
B)  Railroads.
C)  Trucking firms.
D)  Telephone companies.E) A) and C)
F) B) and C)

Question 7

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.E) B) and D)
F) A) and C)

Question 8

An unregulated natural monopoly is most likely to

Accepted Answer

A)  Earn an economic profit.
B)  Produce where marginal cost equals price.
C)  Charge a lower price than if the same product were produced in a competitive market because of the monopolist's greater technical efficiency.
D)  Take advantage of the concept of marginal cost pricing.E) A) and B)
F) C) and D)

Question 9

If Synergy Energy Corp.hires attorneys to keep it informed about new regulations,their salaries represent

Accepted Answer

A)  Administrative costs.
B)  Compliance costs.
C)  Capital costs.
D)  Efficiency costs.E) All of the above
F) B) and C)

Question 10

The long-run average total cost curve of a natural monopolist

Accepted Answer

A)  Is U-shaped.
B)  Reflects declining average fixed costs.
C)  Falls continuously as more output is produced.
D)  Reflects diminishing returns.E) All of the above
F) A) and C)

Question 11

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.E) None of the above
F) A) and B)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

In the absence of a subsidy,production efficiency by a natural monopolist will

Accepted Answer

A)  Be achieved if price is set equal to average total cost.
B)  Be achieved if marginal revenue is set equal to marginal cost.
C)  Be achieved if price is set equal to marginal cost.
D)  Never be achieved.E) B) and C)
F) A) and D)

Question 14

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.E) All of the above
F) B) and C)

Question 15

In industries where government regulates price,individual firms often engage in product differentiation.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following industries was substantially deregulated over the last several decades?

Accepted Answer

A)  Autos.
B)  Cinemas.
C)  Textiles.
D)  Airlines.E) A) and C)
F) C) and D)

Question 17

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.E) A) and D)
F) A) and B)

Question 18

If the government regulated a natural monopolist to achieve price efficiency without subsidies or price discrimination,the monopolist would

Accepted Answer

A)  Lose money and go out of business.
B)  Earn only normal profits.
C)  Earn economic profits.
D)  Earn less profit than before,but still earn a profit.E) A) and B)
F) None of the above

Question 19

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.E) A) and D)
F) A) and C)

Question 20

The loss of utility associated with an inferior mix of output because of poorly designed regulations is known as regulation costs.

Accepted Answer

A) True 
 B)False

Exam 27: Natural Monopolies: Deregulation

Market failure can result from all of the following except

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

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The loss of utility associated with an inferior mix of output because of poorly designed regulations is known as regulation costs.

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

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In the absence of a subsidy,production efficiency by a natural monopolist will

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The administrative costs of regulation include the opportunity costs of the factors of production used by government to administer the regulations.

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

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The first major regulatory target in the United States was

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In cost-benefit analysis,regulatory intervention can be justified if the

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If the government regulated a natural monopolist to achieve price efficiency without subsidies or price discrimination,the monopolist would

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For a natural monopoly,price efficiency means

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Which of the following is an example of government failure?

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In industries where government regulates price,individual firms often engage in product differentiation.

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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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In the real world,the choice is between

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The long-run average total cost curve of a natural monopolist

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An unregulated natural monopoly is most likely to

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If Synergy Energy Corp.hires attorneys to keep it informed about new regulations,their salaries represent

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Which of the following industries was substantially deregulated over the last several decades?

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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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