Question 1

Earnings sharing regulation involves

Accepted Answer

Earnings sharing regulation requires that a monopoly share its profits with its customers if the profits exceed a certain level, ensuring that customers benefit from the monopoly's high profitability.

Question 2

Which of the following best describes the capture theory of regulation? i. Regulation seeks an efficient use of resources.
Ii) Regulation is aimed at keeping prices as low as possible.
Iii) Regulation helps firms maximise economic profit.

Accepted Answer

The capture theory of regulation suggests that regulatory agencies may come to be dominated by the industries they are charged with regulating, leading to regulations that serve the interests of firms, potentially helping them maximize economic profit.

Question 3

If a natural monopoly is told to set price equal to average cost, then the firm

Accepted Answer

Setting price equal to average cost allows the firm to cover its costs, but it does not necessarily equate marginal revenue with marginal cost, which is the condition for profit maximization.

Quiz 15: Monopoly

Earnings sharing regulation involves

Which of the following best describes the capture theory of regulation? i. Regulation seeks an efficient use of resources. Ii) Regulation is aimed at keeping prices as low as possible. Iii) Regulation helps firms maximise economic profit.

If a natural monopoly is told to set price equal to average cost, then the firm