Question 1

Government regulation is designed to change both the structure of an industry and the behavior of firms in the industry.

Accepted Answer

A) True 
 B)False

Question 2

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. 
D) Economic profits are reduced. 
A) Average total costs increase. 
B) Output increases. 
C) Allocative efficiency is achieved. 
D) Economic profits are reduced.

Question 3

Explain the difference in focus between government regulation and government antitrust policy.

Accepted Answer

Government regulation focuses on modifyi

Question 4

When regulation results in an inferior mix of output,there are

Accepted Answer

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

Question 5

The human and capital resources used by businesses to satisfy regulatory requirements are known as compliance costs.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following markets has not been subject to substantial deregulation?

Accepted Answer

A) Airlines. 
B) Computers. 
C) Telecommunications. 
D) Cable TV. 
A) Airlines. 
B) Computers. 
C) Telecommunications. 
D) Cable TV.

Question 7

Discuss specific cases that lead to an increase in the concentration and market power from deregulation.

Accepted Answer

In the airline industry,deregulation in

Question 8

Unregulated natural monopolists produce suboptimal rates of output.

Accepted Answer

A) True 
 B)False

Question 9

Regulation is appropriate if

Accepted Answer

A) Government failure exists. 
B) Market failure exists and the benefits of regulation exceed the costs. 
C) It improves market outcomes regardless of costs. 
D) An economic profit is being earned. 
A) Government failure exists. 
B) Market failure exists and the benefits of regulation exceed the costs. 
C) It improves market outcomes regardless of costs. 
D) An economic profit is being earned.

Question 10

Which of the following would be most likely to give the American public more air travel at a lower cost?

Accepted Answer

A) Reregulate the airline market by reestablishing the CAB. 
B) Allow foreign airlines to enter the U.S.market. 
C) Limit entry of new firms to allow the current firms to gain greater financial strength. 
D) Subsidize research and development and purchases of new airplanes for the major existing airlines. 
A) Reregulate the airline market by reestablishing the CAB. 
B) Allow foreign airlines to enter the U.S.market. 
C) Limit entry of new firms to allow the current firms to gain greater financial strength. 
D) Subsidize research and development and purchases of new airplanes for the major existing airlines.

Question 11

Deregulation implies that government failure is worse than the market failure that regulation is designed to correct.

Accepted Answer

A) True 
 B)False

Question 12

Regulated monopolies that are allowed a specific profit rate have an incentive to hold down costs.

Accepted Answer

A) True 
 B)False

Question 13

Deregulation of the railroad industry led to

Accepted Answer

A) Lower profits. 
B) Decreased competition. 
C) Increased operating costs. 
D) Reconfigured routes and services. 
A) Lower profits. 
B) Decreased competition. 
C) Increased operating costs. 
D) Reconfigured routes and services.

Question 14

Before deregulation of the telephone industry,

Accepted Answer

A) Telephone service prices were lower than after deregulation. 
B) Cutthroat competition eliminated profits. 
C) The volume of long distance phone use was lower than after deregulation. 
D) There were greater variety and quality of service than after deregulation. 
A) Telephone service prices were lower than after deregulation. 
B) Cutthroat competition eliminated profits. 
C) The volume of long distance phone use was lower than after deregulation. 
D) There were greater variety and quality of service than after deregulation.

Question 15

Refer to Figure 27.1.Production efficiency

Accepted Answer

A) Can be achieved at P1. 
B) Can be achieved at P3. 
C) Can be achieved at P4. 
D) Cannot be achieved at any price without a subsidy. 
A) Can be achieved at P1. 
B) Can be achieved at P3. 
C) Can be achieved at P4. 
D) Cannot be achieved at any price without a subsidy.

Question 16

Output regulation forces the natural monopolist to produce at an output

Accepted Answer

A) That perfectly competitive firms would choose. 
B) Where MR = MC. 
C) Greater than its profit-maximizing choice. 
D) Where MR equals zero. 
A) That perfectly competitive firms would choose. 
B) Where MR = MC. 
C) Greater than its profit-maximizing choice. 
D) Where MR equals zero.

Question 17

If entry barriers into a monopolized market are kept low,

Accepted Answer

A) Market power increases. 
B) A market is contestable. 
C) Government failure exists. 
D) A duopoly will be created. 
A) Market power increases. 
B) A market is contestable. 
C) Government failure exists. 
D) A duopoly will be created.

Question 18

In Figure 27.2,an unregulated natural monopoly will produce

Accepted Answer

A) QA and charge PA. 
B) QB and charge PB. 
C) QB and charge PD. 
D) QC and charge PC. 
A) QA and charge PA. 
B) QB and charge PB. 
C) QB and charge PD. 
D) QC and charge PC.

Question 19

Deregulation of the cable TV market by the Telecommunications Act of 1996 resulted in

Accepted Answer

A) Lower prices and better service. 
B) Little change in either prices or service. 
C) Significantly higher prices. 
D) Reductions in prices but little change in the level of service. 
A) Lower prices and better service. 
B) Little change in either prices or service. 
C) Significantly higher prices. 
D) Reductions in prices but little change in the level of service.

Question 20

Which of the following is used as an antitrust tool that focuses on the structure of industry?

Accepted Answer

A) Price regulation. 
B) Profit regulation. 
C) Forbidding business practices such as advertising. 
D) Prohibiting mergers and acquisitions. 
A) Price regulation. 
B) Profit regulation. 
C) Forbidding business practices such as advertising. 
D) Prohibiting mergers and acquisitions.

Exam 27: Natural Monopolies: Deregulation

Government regulation is designed to change both the structure of an industry and the behavior of firms in the industry.

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

Explain the difference in focus between government regulation and government antitrust policy.

When regulation results in an inferior mix of output,there are

The human and capital resources used by businesses to satisfy regulatory requirements are known as compliance costs.

Which of the following markets has not been subject to substantial deregulation?

Discuss specific cases that lead to an increase in the concentration and market power from deregulation.

Unregulated natural monopolists produce suboptimal rates of output.

Regulation is appropriate if

Which of the following would be most likely to give the American public more air travel at a lower cost?

Deregulation implies that government failure is worse than the market failure that regulation is designed to correct.

Regulated monopolies that are allowed a specific profit rate have an incentive to hold down costs.

Deregulation of the railroad industry led to

Before deregulation of the telephone industry,

Refer to Figure 27.1.Production efficiency

Output regulation forces the natural monopolist to produce at an output

If entry barriers into a monopolized market are kept low,

In Figure 27.2,an unregulated natural monopoly will produce

Deregulation of the cable TV market by the Telecommunications Act of 1996 resulted in

Which of the following is used as an antitrust tool that focuses on the structure of industry?

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Theory Versus Reality

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