Question 1

The industry that is the most recent target of deregulation is the

Accepted Answer

A) Trucking industry. 
B) Electric utility industry. 
C) Airline industry. 
D) Long-distance telephone service. 
A) Trucking industry. 
B) Electric utility industry. 
C) Airline industry. 
D) Long-distance telephone service.

Question 2

The term market failure means the market mechanism has not generated the best possible mix of output.

Accepted Answer

A) True 
 B)False

Question 3

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. 
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.

Question 4

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. 
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 5

If a natural monopoly was broken into several smaller competing firms,

Accepted Answer

A) Consumers would lose because of less competition. 
B) Producers would be better off because they would have greater market share. 
C) Society would be worse off because the economies of scale would be destroyed. 
D) Workers would be worse off because fewer jobs would be available. 
A) Consumers would lose because of less competition. 
B) Producers would be better off because they would have greater market share. 
C) Society would be worse off because the economies of scale would be destroyed. 
D) Workers would be worse off because fewer jobs would be available.

Question 6

When firms have the ability to restrict output,raise prices,stifle competition,and inhibit innovation,the market failure involved is

Accepted Answer

A) Public goods. 
B) Externalities. 
C) Market power. 
D) Inequities. 
A) Public goods. 
B) Externalities. 
C) Market power. 
D) Inequities.

Question 7

An unregulated natural monopoly can lead to

Accepted Answer

A) Higher prices for consumers. 
B) An optimal mix of output. 
C) Loss of economies of scale. 
D) Marginal cost pricing. 
A) Higher prices for consumers. 
B) An optimal mix of output. 
C) Loss of economies of scale. 
D) Marginal cost pricing.

Question 8

The argument for government intervention implies that government regulation can improve market outcomes.

Accepted Answer

A) True 
 B)False

Question 9

All of the following are examples of natural monopolies except

Accepted Answer

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

Question 10

Which regulatory cost is borne by the firms that are regulated?

Accepted Answer

A) Efficiency costs. 
B) Subsidy costs. 
C) Compliance costs. 
D) Administrative costs. 
A) Efficiency costs. 
B) Subsidy costs. 
C) Compliance costs. 
D) Administrative costs.

Question 11

Eliminating economic profit of a natural monopolist may be justifiable on the basis of society's equity goal.

Accepted Answer

A) True 
 B)False

Question 12

Natural monopolies fail to minimize

Accepted Answer

A) Marginal cost. 
B) Marginal revenue. 
C) Average variable cost. 
D) Average total cost. 
A) Marginal cost. 
B) Marginal revenue. 
C) Average variable cost. 
D) Average total cost.

Question 13

In response to deregulation,the quality and variety of airline services rose.

Accepted Answer

A) True 
 B)False

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. 
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

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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. 
D) Tax policy. 
A) Deregulation. 
B) Regulation. 
C) Antitrust laws. 
D) Tax policy.

Question 18

Production efficiency under a natural monopoly is achieved

Accepted Answer

A) Where marginal cost equals demand. 
B) Where marginal revenue equals marginal cost. 
C) Where marginal cost is minimized. 
D) At capacity production where ATC is at a minimum. 
A) Where marginal cost equals demand. 
B) Where marginal revenue equals marginal cost. 
C) Where marginal cost is minimized. 
D) At capacity production where ATC is at a minimum.

Question 19

The socially optimal price and output combination in Figure 27.1 is

Accepted Answer

A) P4,Q4. 
B) P0,Q1. 
C) P3,Q3. 
D) P1,Q1. 
A) P4,Q4. 
B) P0,Q1. 
C) P3,Q3. 
D) P1,Q1.

Question 20

A natural monopolist can produce total industry output more efficiently than several smaller but competitive firms.

Accepted Answer

A) True 
 B)False

Exam 27: Natural Monopolies: Deregulation

The industry that is the most recent target of deregulation is the

The term market failure means the market mechanism has not generated the best possible mix of output.

Cross-subsidization occurs when

A natural monopoly

If a natural monopoly was broken into several smaller competing firms,

When firms have the ability to restrict output,raise prices,stifle competition,and inhibit innovation,the market failure involved is

An unregulated natural monopoly can lead to

The argument for government intervention implies that government regulation can improve market outcomes.

All of the following are examples of natural monopolies except

Which regulatory cost is borne by the firms that are regulated?

Eliminating economic profit of a natural monopolist may be justifiable on the basis of society's equity goal.

Natural monopolies fail to minimize

In response to deregulation,the quality and variety of airline services rose.

A natural monopoly can purposely increase its cost of production by

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

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

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

Production efficiency under a natural monopoly is achieved

The socially optimal price and output combination in Figure 27.1 is

A natural monopolist can produce total industry output more efficiently than several smaller but competitive firms.

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