Question 1

The costs associated with regulation are a source of government failure.

Accepted Answer

A) True 
 B)False

Question 2

Regulation of the quantity produced by a monopolist typically has no impact on the quality of the product.

Accepted Answer

A) True 
 B)False

Question 3

The major problem with price efficiency regulation is that the natural monopolist loses money or earns negative profits.

Accepted Answer

A) True 
 B)False

Question 4

If profit regulation is used to control a natural monopolist,the monopolist is likely to

Accepted Answer

A)  Attempt to reduce the costs of production.
B)  Inflate or pad the costs of production.
C)  Increase the quality of its product in an effort to increase sales.

Question 5

Initially the number of airline firms fell in response to deregulation.

Accepted Answer

A) True 
 B)False

Question 6

What is meant by price efficiency?

Accepted Answer

A)  Price is greater than marginal cost.
B)  Price is equal to marginal cost.
C)  Price is equal to average total cost.

Question 7

Which of the following can the government use to alter both firm behavior and industry structure?

Accepted Answer

A)  Deregulation.
B)  Regulation.
C)  Antitrust laws. C

Question 8

-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 9

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.

Question 10

If a natural monopoly is forced to use marginal cost pricing,which of the following is not true?

Accepted Answer

A)  Average total costs increase.
B)  Output increases.
C)  Allocative efficiency is achieved.

Question 11

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

Accepted Answer

In the telecommunications industry,the m...

Question 12

If a natural monopoly was forced to break up into several small competitive firms,the

Accepted Answer

A)  Cost of production should fall as the smaller firms become more efficient.
B)  Price charged by the competitive firms should decrease as the firms become more efficient.
C)  Price charged by the competitive firms should increase because they no longer have economies of scale.

Question 13

All of the following are examples of natural monopolies except

Accepted Answer

A)  Local telephone companies.
B)  Electricity companies.
C)  College bookstores.

Question 14

When profits are regulated,monopolists are likely to increase their fixed costs.

Accepted Answer

A) True 
 B)False

Question 15

What development turned the cable TV market into a contestable one?

Accepted Answer

A)  Economies of scale.
B)  Satellite and broadband technology.
C)  Cable TV firms raised prices. B

Question 16

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.

Question 17

In which of the following markets did deregulation contribute to increased industry concentration?

Accepted Answer

A)  Airlines.
B)  Cable TV.
C)  Trucking.

Question 18

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.

Question 19

Which of the following is true about this firm?

Accepted Answer

A)  It is a natural monopoly.
B)  Society can benefit from government regulation using marginal cost pricing without a subsidy.
C)  Marginal cost pricing will assure technical efficiency.

Question 20

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. A

Exam 27: Natural Monopolies: Deregulation

The costs associated with regulation are a source of government failure.

Correct AnswerverifiedShow Answer

Regulation of the quantity produced by a monopolist typically has no impact on the quality of the product.

Correct AnswerverifiedShow Answer

The major problem with price efficiency regulation is that the natural monopolist loses money or earns negative profits.

Correct AnswerverifiedShow Answer

If profit regulation is used to control a natural monopolist,the monopolist is likely to

Correct AnswerverifiedShow Answer

Initially the number of airline firms fell in response to deregulation.

Correct AnswerverifiedShow Answer

What is meant by price efficiency?

Correct AnswerverifiedShow Answer

Which of the following can the government use to alter both firm behavior and industry structure?

Correct AnswerverifiedC

-Adherence to marginal cost pricing in Figure 27.1 will necessitate

Correct AnswerverifiedShow Answer

Profit regulation occurs when regulation requires the natural monopolist to set

Correct AnswerverifiedShow Answer

If a natural monopoly is forced to use marginal cost pricing,which of the following is not true?

Correct AnswerverifiedShow Answer

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

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

If a natural monopoly was forced to break up into several small competitive firms,the

Correct AnswerverifiedShow Answer

All of the following are examples of natural monopolies except

Correct AnswerverifiedShow Answer

When profits are regulated,monopolists are likely to increase their fixed costs.

Correct AnswerverifiedShow Answer

What development turned the cable TV market into a contestable one?

Correct AnswerverifiedB

The case for deregulation rests on the argument that

Correct AnswerverifiedShow Answer

In which of the following markets did deregulation contribute to increased industry concentration?

Correct AnswerverifiedShow Answer

A natural monopoly can purposely increase its cost of production by

Correct AnswerverifiedShow Answer

Which of the following is true about this firm?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedA

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C

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In the telecommunications industry,the m...
View Answer

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B

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A