Question 1

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.E) None of the above
F) A) and C)

Question 2

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.E) All of the above
F) A) and B)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

When a firm experiences positive economic profits over the long run,

Accepted Answer

A)   Technical efficiency cannot be achieved.
B)   The firm must be a natural monopoly.
C)   Allocative efficiency will always be achieved.
D)   Equity may not be achieved.E) A) and B)
F) A) and C)

Question 5

Deregulation of the railroad industry led to

Accepted Answer

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

Question 6

The marginal benefits of regulation should exceed the marginal costs of regulation if additional regulations are to be imposed.

Accepted Answer

A) True 
 B)False

Question 7

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.E) C) and D)
F) A) and C)

Question 8

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.E) B) and C)
F) None of the above

Question 9

In industries where government regulates price, individual firms often engage in product differentiation.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)   Airlines.
B)   Computers.
C)   Telecommunications.
D)   Cable TV.E) C) and D)
F) B) and D)

Question 11

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

Accepted Answer

A) True 
 B)False

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.
D)   Total production for the industry should increase because of the efficiency generated by increased competition.E) A) and D)
F) A) and B)

Question 13

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 14

1. B)  Can be achieved at P3. C)  Can be achieved at P4. D)  Cannot be achieved at any price without a subsidy." class="answers-bank-image d-inline" rel="preload" > 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.E) A) and D)
F) None of the above

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

4, Q4. B)  P2, Q2. C)  P3, Q3. " class="answers-bank-image d-inline" rel="preload" > To maximize profits, an unregulated natural monopolist would choose which combination of price and output in Figure 27.1?

Accepted Answer

A)   P4, Q4.
B)   P2, Q2.
C)   P3, Q3.D) All of the above
E) B) and C)

Question 17

Describe how the government should set a monopolist's price to ensure allocative efficiency.What is the problem with setting the price at this level?

Accepted Answer

To ensure that allocative efficiency is ...

Question 18

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.E) B) and C)
F) A) and D)

Question 19

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 20

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

Exam 13: Natural Monopolies: Deregulation

Deregulation of the railroad industry led to

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To maximize profits, an unregulated natural monopolist would choose which combination of price and output in Figure 27.1?

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In industries where government regulates price, individual firms often engage in product differentiation.

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The marginal benefits of regulation should exceed the marginal costs of regulation if additional regulations are to be imposed.

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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

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

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

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

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When a firm experiences positive economic profits over the long run,

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

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

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

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

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

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Refer to Figure 27.1.Production efficiency

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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?

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Describe how the government should set a monopolist's price to ensure allocative efficiency.What is the problem with setting the price at this level?

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

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

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

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To ensure that allocative efficiency is ...
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