Question

1.The ATC curve for a natural monopoly falls as output increases.

(A) Rises as output increases.

(B) Stays the same as output increases.

(C) Is u-shaped.

 

2. At what point would the government need to subsidize a price-regulated monopoly in order to keep it from exiting the market in the long run?

(A) Price < ATC

(B) Price < MC

(C) MR < MC

(D) ATC > MC

 

3. Forcing a natural monopoly to provide a minimum amount of a good or service would likely cause the firm to

(A) Cease production unless the government provides a subsidy

(B) Reduce costs through improved efficiency

(C) Reduce costs through quality deterioration

(D) Inflate costs to increase maximum allowable profits

 

4. Regulation is appropriate if

(A) Market failure exists.

(B) Market failure exists and the benefit of regulation outweighs the cost.

(C) The regulation improves the total utility.

(D) Regulation is costless.

 

5. Before the deregulation in the airline industry, airlines charged higher rates on long flights in order to make short flights cheaper. Such a practice is an example of:

(A) Cross-subsidization

(B) Price discrimination

(C) Public goods

(D) Externalities