Question 1

When government regulations force a natural monopoly to produce whereprice equals average total cost, social welfare is

Accepted Answer

The answer of When government regulations force a natural monopoly...

Question 2

Compared to the profit­maximizing outcome, average cost pricing in naturalmonopoly leads to

Accepted Answer

The answer of Compared to the profit­maximizing outcome, average cost...

Question 3

If the government wishes to provide a natural monopolist with a "fair" rateof return, it will force the firm to set

Accepted Answer

The government wants to provide a "fair" rate of return to the natural monopolist, which means that the firm should earn enough revenue to cover its costs and earn a reasonable profit, but not charge excessively high prices to consumers. Setting price equal to average cost (AC) ensures that the firm earns a normal rate of return on its investment, but does not allow it to extract excessive profits at the expense of consumers. Setting price equal to marginal cost (MC) would result in the firm earning zero economic profit, which may not be sufficient to attract investment and maintain the infrastructure needed for the provision of the service. Setting price equal to marginal revenue (MR) or average variable cost (AVC) is not appropriate in this case, as it does not guarantee a "fair" rate of return for the firm.

Question 4

Which of the following is likely to result from the regulation of taxicabs inMexico City?

Accepted Answer

The answer of Which of the following is likely to...

Question 5

A physicians' professional association supports legislation seeking higherquality medical care.According to the special interest theory of regulation,who likely will benefit most from this legislation?

Accepted Answer

The special interest theory of regulation suggests that regulations are often driven by the interests of specific groups, such as professional associations. In this case, the physicians' professional association is pushing for higher quality medical care, which would likely benefit physicians the most by allowing them to charge higher prices for their services. It may also benefit patients by improving the quality of care they receive, but the primary beneficiaries would be the physicians.

Question 6

A regulated natural monopoly that must set price equal to average cost will

Accepted Answer

If a regulated natural monopoly must set price equal to average cost, it will earn a normal profit in the long run. This means that it will cover all of its costs, including both explicit (e.g. wages, rent, materials) and implicit (e.g. opportunity cost of resources) costs, but it will not earn any economic profit above and beyond its opportunity costs. This is because as a natural monopoly, it faces high fixed costs but low marginal costs, meaning that it can produce output more efficiently than multiple firms could. By setting price equal to average cost, regulators ensure that the monopoly does not abuse its market power and charge excessive prices to consumers. However, the monopoly is still able to cover its costs and remain in business, earning a normal profit in the process.

Question 7

Producers play a disproportionately large role in influencing publicregulation because they have a strong interest in matters that affect theirspecialized source of income.

Accepted Answer

Producers have a vested interest in influencing public regulation in their industry, as it directly affects their income and livelihood. This gives them a disproportionate level of influence compared to other members of society.

Question 8

Which of the following groups benefits from regulation, according to thespecial interest theory of regulation?

Accepted Answer

According to the special interest theory of regulation, only certain producers benefit from regulation because they can limit competition and increase profits. Other groups, such as all consumers or society as a whole, do not necessarily benefit from regulation based on this theory.

Question 9

If producers support proposed regulation of their industry, then

Accepted Answer

The answer of If producers support proposed regulation of their...

Question 10

To allow a public utility (which is a natural monopoly) to earn only a normalprofit, the government should

Accepted Answer

Since the public utility is a natural monopoly, it has high fixed costs and low marginal costs. Therefore, the average cost is also high. Setting the price equal to the average cost allows the public utility to earn a normal profit, which is fair for consumers and the utility company. Equating marginal cost and average cost or setting marginal cost equal to marginal revenue may lead to the public utility earning excessive profits, while setting price equal to marginal cost may result in losses for the public utility.

Question 11

The capture theory of regulation, espoused by George Stigler, asserts that

Accepted Answer

According to the capture theory of regulation, producers "capture" regulatory agencies so that regulation favors their own interests. This can lead to regulatory capture, where regulations are designed to benefit companies rather than protect consumers. Stigler argued that regulatory agencies often become overly influenced by the interests of the industries they are supposed to regulate, leading to a distortion of the regulatory process.

Question 12

The government often enacts regulation that benefits producers because

Accepted Answer

Producers have a strong interest in matters that affect their specialized source of income. This means that they are more likely to lobby the government to enact regulations that will benefit them financially. The government may also see it as important to support these producers in order to promote economic growth and stability, which can in turn benefit the public.

Quiz 15: Economic Regulation and Antitrust Policy

When government regulations force a natural monopoly to produce whereprice equals average total cost, social welfare is

Compared to the profitmaximizing outcome, average cost pricing in naturalmonopoly leads to

If the government wishes to provide a natural monopolist with a "fair" rateof return, it will force the firm to set

Which of the following is likely to result from the regulation of taxicabs inMexico City?

A physicians' professional association supports legislation seeking higherquality medical care.According to the special interest theory of regulation,who likely will benefit most from this legislation?

A regulated natural monopoly that must set price equal to average cost will

Producers play a disproportionately large role in influencing publicregulation because they have a strong interest in matters that affect theirspecialized source of income.

Which of the following groups benefits from regulation, according to thespecial interest theory of regulation?

If producers support proposed regulation of their industry, then

To allow a public utility (which is a natural monopoly) to earn only a normalprofit, the government should

The capture theory of regulation, espoused by George Stigler, asserts that

The government often enacts regulation that benefits producers because

Quiz 15: Economic Regulation and Antitrust Policy

When government regulations force a natural monopoly to produce whereprice equals average total cost, social welfare is

Compared to the profit­maximizing outcome, average cost pricing in naturalmonopoly leads to

If the government wishes to provide a natural monopolist with a "fair" rateof return, it will force the firm to set

Which of the following is likely to result from the regulation of taxicabs inMexico City?

A physicians' professional association supports legislation seeking higherquality medical care.According to the special interest theory of regulation,who likely will benefit most from this legislation?

A regulated natural monopoly that must set price equal to average cost will

Producers play a disproportionately large role in influencing publicregulation because they have a strong interest in matters that affect theirspecialized source of income.

Which of the following groups benefits from regulation, according to thespecial interest theory of regulation?

If producers support proposed regulation of their industry, then

To allow a public utility (which is a natural monopoly) to earn only a normalprofit, the government should

The capture theory of regulation, espoused by George Stigler, asserts that

The government often enacts regulation that benefits producers because

Compared to the profitmaximizing outcome, average cost pricing in naturalmonopoly leads to