Question 1

-The figure above shows the marginal revenue, marginal cost, and demand curves for an airline offering daily flights between Los Angeles and Toronto. If the airline is regulated using a marginal cost pricing rule ________ flights will be offered each month at a price of ________ per flight.

Accepted Answer

Under marginal cost pricing, the price is set where the marginal cost curve intersects the demand curve. This occurs at 400 flights per month at a price of $100 per flight.

Question 2

Regulation of a natural monopoly will maximize the sum of consumer surplus and producer surplus if the firm is regulated with

Accepted Answer

A marginal cost pricing rule sets the price equal to the marginal cost, which leads to an efficient allocation of resources and maximizes the total surplus (sum of consumer and producer surplus).

Question 3

If an industry is a natural monopoly and regulators decide that the firm must price at marginal cost, then consumers will be ________ off than if the firm was unregulated and the firm's owners will be ________ off than if it was unregulated.

Accepted Answer

Consumers will be better off because they will pay a lower price equal to the marginal cost, which is typically lower than the monopoly price. The firm's owners will be worse off because pricing at marginal cost may not cover the total costs, leading to losses.

Question 4

If the regulator wanted to maximize the total surplus in a natural monopoly market, the regulator has the firm set its price equal to its

Accepted Answer

Setting the price equal to marginal cost maximizes total surplus because it leads to an efficient allocation of resources where the price reflects the true cost of producing an additional unit, thus maximizing consumer and producer surplus.

Question 5

If the regulator wants to avoid any deadweight loss in a natural monopoly market, the regulator has the firm set its price equal to its

Accepted Answer

Setting the price equal to marginal cost ensures allocative efficiency, eliminating deadweight loss by equating the price consumers pay with the cost of producing an additional unit.

Question 6

The use of a two-part price in a regulated natural monopoly

Accepted Answer

A two-part pricing strategy can allow a regulated natural monopoly to cover its fixed costs through a fixed fee while setting the usage price equal to marginal cost, thus adhering to marginal cost pricing without incurring losses.

Question 7

Under a marginal cost pricing rule, a regulated natural monopoly

Accepted Answer

Under marginal cost pricing, the price is set equal to the marginal cost, which is typically below average total cost for a natural monopoly, leading to economic losses but no deadweight loss as the price reflects the true cost of production.

Question 8

For a natural monopoly, if price is equal to marginal social cost, then

Accepted Answer

When price equals marginal social cost in a natural monopoly, it results in an efficient allocation of resources, eliminating deadweight loss. However, the firm may not cover its average total costs, potentially leading to zero or negative economic profit.

Question 9

If a natural monopoly has an average cost pricing rule imposed, the rule will

Accepted Answer

The answer of If a natural monopoly has an average...

Question 10

There is no deadweight loss if the regulatory rule for a natural monopoly

Accepted Answer

A marginal cost pricing rule eliminates deadweight loss by setting the price equal to the marginal cost, leading to an efficient allocation of resources.

Question 11

When an average total cost pricing rule is enforced, average total cost equals

Accepted Answer

The answer of When an average total cost pricing rule...

Question 12

A natural monopoly that charges the profit-maximizing price will produce ________ amount of output than a ________.

Accepted Answer

A natural monopoly charging the profit-maximizing price will produce less output than if it were regulated with a marginal cost pricing rule, as the latter would typically result in higher output to meet demand at a lower price.

Question 13

In a regulated natural monopoly, a marginal cost pricing rule maximizes

Accepted Answer

In a regulated natural monopoly, marginal cost pricing leads to an efficient allocation of resources, maximizing total surplus by equating price with marginal cost, which reflects the true cost of producing an additional unit.

Question 14

If regulators of the local gas and water utility companies require those firms to price their service at marginal cost

Accepted Answer

If firms price their services at marginal cost, they may not cover their total costs, including fixed costs, and might require a subsidy to remain financially viable.

Question 15

When an average cost pricing rule is imposed on a natural monopoly

Accepted Answer

An average cost pricing rule allows the monopoly to set prices equal to average costs, enabling it to cover all its costs and make zero economic profit, while preventing economic losses.

Question 16

For a regulated natural monopoly, an average cost pricing rule sets price equal to

Accepted Answer

An average cost pricing rule for a regulated natural monopoly sets the price equal to average total cost to ensure the firm covers all its costs, including both fixed and variable costs, while preventing excessive profits.

Question 17

-The figure above shows the marginal revenue, marginal cost, and demand curves for an airline offering daily flights between Los Angeles and Toronto. If the airline is regulated using a marginal cost pricing rule total surplus will be

Accepted Answer

Marginal cost pricing sets the price equal to the marginal cost, maximizing total surplus, which is the sum of consumer and producer surplus. The total surplus is given as $80,000 when this pricing rule is applied.

Question 18

An average cost pricing rule for a natural monopoly sets the price ________ the marginal cost, thereby ________ a deadweight loss.

Accepted Answer

An average cost pricing rule sets the price above the marginal cost, which leads to a deadweight loss because the price is higher than the efficient level where price equals marginal cost.

Question 19

Gene's Car Wash is a natural monopoly. To wash 100 cars a week, if Gene is unregulated, he would charge a price of $10. Gene's long-run average cost for washing 100 cars is $8, his average variable cost is $6, and his marginal cost is constant at $4. If Gene was regulated using a marginal cost pricing rule, the price he would be allowed to charge to wash 100 cars is

Accepted Answer

Under marginal cost pricing regulation, Gene would be allowed to charge a price equal to his marginal cost, which is $4.

Question 20

-Mountain Water is a natural monopoly. The government decides to regulate Mountain Water by imposing a marginal cost pricing rule. The figure above shows the demand for Mountain Water. Marginal cost is $0.20 per bottle. The price of a bottle of Mountain Water is ________, and ________ thousand bottles are sold per month.

Accepted Answer

Marginal cost pricing means that the price is set equal to marginal cost, which is $0.20 per bottle. At this price, 500 thousand bottles are sold per month.

Quiz 13: Monopoly

-The figure above shows the marginal revenue, marginal cost, and demand curves for an airline offering daily flights between Los Angeles and Toronto. If the airline is regulated using a marginal cost pricing rule flights will be offered each month at a price of per flight.