The figure below shows revenue and cost curves of a natural monopoly firm.Figure 14.1

In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
-Which of the following is a possible reason for governments to regulate business operations?
A)To increase monopoly profits
B)To reduce the amount of information consumers have about a product
C)To increase negative externalities
D)To promote competitive behavior
E)To decrease positive externalities

Question

The figure below shows revenue and cost curves of a natural monopoly firm.Figure 14.1
​
  In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
-Which of the following is a possible reason for governments to regulate business operations?
A)To increase monopoly profits 
B)To reduce the amount of information consumers have about a product 
C)To increase negative externalities 
D)To promote competitive behavior 
E)To decrease positive externalities

Quizplus · Accepted Answer

The presence of a natural monopoly may lead to higher prices and reduced output, as seen in Figure 14.1. Government regulation can promote competitive behavior and ensure that consumers are not exploited with high prices. Therefore, option D is the best choice. Options A, B, C, and E are not valid reasons for government regulation of business operations.

The Figure Below Shows Revenue and Cost Curves of a Natural