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Economists who believe in encouraging concentration

 Economists who believe in encouraging concentration

a. are clearly wrong

b. think that high prices are beneficial to society

c. think that lower prices result from economies of scale

d. want the government to break up monopolies

e. favor a laissez-faire approach

112.              Don’s Taxicab Service is the only taxi company operating in a large city. In the
                            beginning, Don took over the local taxi market by buying out his competition. Now he
                            sets his own rates as a privately-owned monopoly, but residents and tourists are upset by
                            the very high prices. If there are no economies of scale in taxicab service, then the best
                            solution is most likely

a. to encourage concentration by constructing barriers to entry

b. laissez-faire since the market is clearly contestable

c. antitrust action to break up Don’s into a number of firms

d. price regulation by a city commission

e. for the city to take over and operate Don’s Taxicab

113.              Government regulation of monopoly

a. separates monopoly pricing from monopolies

b. is undesirable when there is a natural monopoly

c. cannot be done when there are monopoly profits

d. is unnecessary when economies of scale exist

e. will result in economic profits to the regulated firm

114.              If left alone, a natural monopoly will

a. earn normal profits

b. earn maximum economic profits

c. produce where P = ATC

d. face competition from new entrants

e. go out of business

115.              A fair price for a regulated monopoly is for the regulatory commission to set price equal

a. marginal cost

b. marginal revenue

c. economic profit

d. average total cost

e. normal profit

116.              The main problem with a regulatory commission setting P = ATC is that the regulated
                            firm will

a. experience a loss

b. find its demand curve shifting to the left

c. earn economic profits

d. refuse to make new purchases of capital

e. have little incentive to keep costs down

117.              The government is undertaking a policy to deal with a monopoly. As a result, the
                            monopoly’s ATC curve is shifting upward. Most likely, which of the following policies is
                            being used?

a. antitrust action

b. a regulatory commission sets a fair price

c. a regulatory commission sets a price equal to marginal cost

d. laissez-faire

e. encouraging concentration

118.              If a regulatory commission sets the regulated price equal to marginal cost for a
                            natural monopoly,

a. losses will result

b. government subsidies will be unnecessary

c. the firm will earn economic profits

d. new firms will want to enter

e. resource use will not be optimal

119.              A local cable company has its rates set at P = $15 by a regulatory commission. Its current
                            output is 10,000 households and its costs are as follows: ATC = $17; AVC = $14; and
                            MC = $15. From this, we can tell that this is

a. a fair price, and the firm earns a normal profit

b. a fair price, and the firm earns an economic loss

c. marginal cost pricing, and the firm earns a normal profit

d. marginal cost pricing, and the firm earns an economic loss

e. the same price that an unregulated monopolist would charge

120.              The primary explanation for why a regulatory commission may protect
                            the monopoly it is supposed to regulate is that the commission members

a. regularly receive gifts and bribes

b. are incompetent

c. are experts sympathetic to industry management

d. work to increase industry competition

e. are directly accountable to the public

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