Question 1

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 2

When the FCC hires a new lawyer to help enforce government regulation,her salary is an example of

Accepted Answer

A)  An administrative cost of regulation.
B)  An efficiency cost of regulation.
C)  A compliance cost of regulation.
D)  Bloated costs.

Question 3

Proponents of electric utility industry deregulation argued that deregulation was justified because

Accepted Answer

A)  Other industries had been deregulated.
B)  Improvements in technology allowed easy transmission of electricity using satellite technology.
C)  Improvements in technology allowed easy transmission of electricity through the deregulated telephone system.
D)  Improvements in technology allowed the development of high-voltage transmission power lines.

Question 4

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

Accepted Answer

A)  Is downward-sloping in the relevant range of production.
B)  Is U-shaped.
C)  Reflects diseconomies of scale.
D)  Is below the long-run marginal cost curve in the relevant range of production.

Question 5

One In the News article says that when JetBlue "…comes to town,fares go down …" If entry barriers are low enough,a market

Accepted Answer

A)  Is inefficient.
B)  Violates antitrust laws.
C)  Requires regulation.
D)  Is contestable.

Question 6

The use of high prices and profits on one product to subsidize low prices on another product is

Accepted Answer

A)  Substitute pricing.
B)  Profit subsidization.
C)  Profit sharing.
D)  Cross-subsidization.

Question 7

When the CAB allowed airlines to charge high prices on longer,more efficient routes as long as they maintained service on shorter,unprofitable routes,it was allowing

Accepted Answer

A)  Profit sharing.
B)  Cross-subsidization.
C)  Substitute pricing.
D)  Profit subsidization.

Question 8

The case for deregulation rests on the argument that

Accepted Answer

A)  Government imperfections are worse than the market imperfections they were designed to cure.
B)  Public goods are best provided by laissez faire.
C)  Economies of scale are better achieved with the invisible hand.
D)  Regulation is desirable and efficient,but a laissez-faire approach is more equitable.

Question 9

Prior to the deregulation of the railroad industry,there was little incentive to invest in new technology or equipment.This is an example of

Accepted Answer

A)  The failure of deregulation.
B)  The inefficiencies of regulation
C)  Market failure.
D)  The failure of laissez faire.

Question 10

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 11

To maximize profit,a natural monopolist produces the level of output at which

Accepted Answer

A)  Price equals marginal cost.
B)  Price equals average total cost.
C)  Marginal revenue equals marginal cost.
D)  Marginal cost equals average total cost.

Question 12

An unregulated natural monopoly can lead to all of the following except

Accepted Answer

A)  A suboptimal mix of output.
B)  Less output than society wants.
C)  Unfair monopoly profits.
D)  Low prices for consumers.

Question 13

The Braden brothers considered starting a new skydiving company.Once they read the government regulations they would have to comply with,they changed their minds.This is an example of

Accepted Answer

A)  An administrative cost of regulation.
B)  An efficiency cost of regulation.
C)  A compliance cost of regulation.
D)  An equity cost of regulation.

Question 14

The goal of antitrust laws is to

Accepted Answer

A)  Control the structure of an industry only.
B)  Alter industry behavior only.
C)  Prevent monopolies from forming.
D)  Control the structure of an industry or prevent the abuse of market power.

Question 15

Output regulation for a natural monopolist

Accepted Answer

A)  May require large government subsidies.
B)  Is consistent with marginal cost pricing.
C)  Encourages bloated costs.
D)  May jeopardize equity goals.

Question 16

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 17

A. B) PB. C) PC. D) PD." class="answers-bank-image d-inline" rel="preload" > In Figure 27.2,regulation designed to achieve allocative efficient pricing for the natural monopoly will result in a price of

Accepted Answer

A)  PA.
B)  PB.
C)  PC.
D)  PD.

Question 18

Regulatory intervention must balance the anticipated improvements in market outcomes against the economic costs of regulation.

Accepted Answer

A) True 
 B)False

Question 19

Compared with the profit-maximizing choice of a natural monopolist,output regulation will result in a

Accepted Answer

A)  Higher level of output and a higher price.
B)  Lower level of output and a higher price.
C)  Higher level of output and a lower price.
D)  Lower level of output and a lower price.

Question 20

The use of marginal cost pricing in Figure 27.1 will result in

Accepted Answer

A)  Economic profits.
B)  Economic losses.
C)  A fair rate of return on invested capital.
D)  Only normal profits.

Exam 27: Natural Monopolies: Deregulation

The use of marginal cost pricing in Figure 27.1 will result in

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The use of high prices and profits on one product to subsidize low prices on another product is

Correct AnswerverifiedShow Answer

Compared with the profit-maximizing choice of a natural monopolist,output regulation will result in a

Correct AnswerverifiedShow Answer

In Figure 27.2,regulation designed to achieve allocative efficient pricing for the natural monopoly will result in a price of

Correct AnswerverifiedShow Answer

Regulatory intervention must balance the anticipated improvements in market outcomes against the economic costs of regulation.

Correct AnswerverifiedShow Answer

Prior to the deregulation of the railroad industry,there was little incentive to invest in new technology or equipment.This is an example of

Correct AnswerverifiedShow Answer

When the FCC hires a new lawyer to help enforce government regulation,her salary is an example of

Correct AnswerverifiedShow Answer

The case for deregulation rests on the argument that

Correct AnswerverifiedShow Answer

When the CAB allowed airlines to charge high prices on longer,more efficient routes as long as they maintained service on shorter,unprofitable routes,it was allowing

Correct AnswerverifiedShow Answer

To maximize profit,a natural monopolist produces the level of output at which

Correct AnswerverifiedShow Answer

An unregulated natural monopoly can lead to all of the following except

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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

One In the News article says that when JetBlue "…comes to town,fares go down …" If entry barriers are low enough,a market

Correct AnswerverifiedShow Answer

The goal of antitrust laws is to

Correct AnswerverifiedShow Answer

Output regulation for a natural monopolist

Correct AnswerverifiedShow Answer

Proponents of electric utility industry deregulation argued that deregulation was justified because

Correct AnswerverifiedShow Answer

A natural monopoly is a desirable market structure because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Braden brothers considered starting a new skydiving company.Once they read the government regulations they would have to comply with,they changed their minds.This is an example of

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

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A natural monopoly has an ATC curve that...
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