Question 1

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. 
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 2

It is not necessary to offer a subsidy in order to make price efficiency regulation viable in the long run.

Accepted Answer

A) True 
 B)False

Question 3

Profit regulation of a natural monopoly is achieved when

Accepted Answer

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

Question 4

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

Accepted Answer

In the telecommunications industry,the m

Question 5

The over 280,000 people employed in regulatory agencies of the federal government represent

Accepted Answer

A) A compliance cost. 
B) An efficiency cost. 
C) An administrative cost. 
D) An information cost. 
A) A compliance cost. 
B) An efficiency cost. 
C) An administrative cost. 
D) An information cost.

Question 6

Which of the following is not a regulatory option when the government is trying to prevent market failure in the case of a natural monopoly?

Accepted Answer

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

Question 7

Price regulation of a natural monopoly may require subsidies.

Accepted Answer

A) True 
 B)False

Question 8

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

Question 9

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

Question 10

The electric utility industry became a target for deregulation when

Accepted Answer

A) The cost of constructing nuclear power plants declined. 
B) Advances in transmission technology made it possible to move electricity across state lines. 
C) Local utility companies began behaving like monopolies. 
D) The marginal costs for power plants increased considerably. 
A) The cost of constructing nuclear power plants declined. 
B) Advances in transmission technology made it possible to move electricity across state lines. 
C) Local utility companies began behaving like monopolies. 
D) The marginal costs for power plants increased considerably.

Question 11

When market outcomes improve after government regulation is enforced,

Accepted Answer

A) Technical efficiency is achieved. 
B) The net effect of government intervention on society is definitely beneficial. 
C) Government intervention still may not be justified if the economic costs are too high. 
D) Allocative efficiency is achieved. 
A) Technical efficiency is achieved. 
B) The net effect of government intervention on society is definitely beneficial. 
C) Government intervention still may not be justified if the economic costs are too high. 
D) Allocative efficiency is achieved.

Question 12

Marginal cost pricing implies a loss on every unit of output produced by natural monopoly.

Accepted Answer

A) True 
 B)False

Question 13

Output regulation is likely to result in

Accepted Answer

A) A surplus of the product. 
B) A decline in the quality of the product. 
C) An increase in the cost of subsidies. 
D) Profit maximization for the monopolist. 
A) A surplus of the product. 
B) A decline in the quality of the product. 
C) An increase in the cost of subsidies. 
D) Profit maximization for the monopolist.

Question 14

Government failure occurs when

Accepted Answer

A) Dealing with a natural monopoly. 
B) There is market power. 
C) Government intervention fails to improve economic outcomes. 
D) Public goods are present. 
A) Dealing with a natural monopoly. 
B) There is market power. 
C) Government intervention fails to improve economic outcomes. 
D) Public goods are present.

Question 15

Profit regulation is desirable because if a firm is permitted a specific profit rate,it has an incentive to limit costs.

Accepted Answer

A) True 
 B)False

Question 16

If the government forces a natural monopoly to produce the output level at which P = MC,the firm will

Accepted Answer

A) Fail to produce efficiently. 
B) Produce less than the profit-maximizing level of output. 
C) Incur losses. 
D) Produce where ATC is at a minimum. 
A) Fail to produce efficiently. 
B) Produce less than the profit-maximizing level of output. 
C) Incur losses. 
D) Produce where ATC is at a minimum.

Question 17

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 18

Adherence to marginal cost pricing in Figure 27.1 will require

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. 
D) Setting minimum output at Q2. 
A) Taxing away the economic profits that will be realized. 
B) Giving the firm a subsidy. 
C) Regulation of the firm's profits. 
D) Setting minimum output at Q2.

Question 19

Government failure can never be worse than the market failure it attempts to correct.

Accepted Answer

A) True 
 B)False

Question 20

Economies of scale refer to the

Accepted Answer

A) Reduction in minimum average costs due to an increase in the number of workers hired. 
B) Reduction in minimum average costs due to an increase in plant size. 
C) Downward-sloping portion of the marginal cost curve. 
D) Downward-sloping portion of the average total cost curve. 
A) Reduction in minimum average costs due to an increase in the number of workers hired. 
B) Reduction in minimum average costs due to an increase in plant size. 
C) Downward-sloping portion of the marginal cost curve. 
D) Downward-sloping portion of the average total cost curve.

Exam 27: Natural Monopolies: Deregulation

When there is market failure

It is not necessary to offer a subsidy in order to make price efficiency regulation viable in the long run.

Profit regulation of a natural monopoly is achieved when

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

The over 280,000 people employed in regulatory agencies of the federal government represent

Which of the following is not a regulatory option when the government is trying to prevent market failure in the case of a natural monopoly?

Price regulation of a natural monopoly may require subsidies.

What is meant by price efficiency?

The unregulated monopoly in Figure 27.2 will experience

The electric utility industry became a target for deregulation when

When market outcomes improve after government regulation is enforced,

Marginal cost pricing implies a loss on every unit of output produced by natural monopoly.

Output regulation is likely to result in

Government failure occurs when

Profit regulation is desirable because if a firm is permitted a specific profit rate,it has an incentive to limit costs.

If the government forces a natural monopoly to produce the output level at which P = MC,the firm will

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

Adherence to marginal cost pricing in Figure 27.1 will require

Government failure can never be worse than the market failure it attempts to correct.

Economies of scale refer to the

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