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Answer to Question #52951 in Microeconomics for Yana

Question #52951
MULTIPLE CHOICE
1. Which of the following is a problem with government regulation of natural monopolies?
a. creation of excessive profits levels
b. reduced incentives to cut costs
c. decreased number of firms in the market
d. lack of influence from special interest groups
e. all of the above.

2. If a regulatory board wanted to make sure that a natural monopoly chose a price resulting in the efficient level of output, it should set a price equal to:
a. marginal cost.
b. average fixed cost.
c. average variable cost.
d. average total cost.
e. average total cost, plus a ten percent normal return on investment.

Expert's answer
1. Which of the following is a problem with governmentregulation of natural monopolies?
 a. creation ofexcessive profits levels  b. reducedincentives to cut costs  c. decreasednumber of firms in the market  d. lack ofinfluence from special interest groups e. all of the above.
Answer - B
 
 2. If a regulatoryboard wanted to make sure that a natural monopoly chose a price resulting in
the efficient level of output, it should set a price equal to:
 a. marginal cost.
 b. average fixedcost.
 c. averagevariable cost.
 d. average totalcost.
 e. average totalcost, plus a ten percent normal return on investment.
Answer - A

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