1.If the government regulates a natural monopolist to produce the allocatively e

Question

1.If the government regulates a natural monopolist to produce the allocatively efficient level of output, it will require the monopolist to set a price that is   

a.equal to its marginal cost and grant a subsidy to cover the loss

   b.equal to its average total cost and levy a tax on the excess profit

   c.greater than its marginal cost and levy a tax on the excess profit

   d.greater than its marginal cost but that minimizes the deadweight loss

e. greater than its average total cost but that minimizes the deadweight loss

2.For a natural monopoly in which economies of scale are taking place at all output levels, which of the following is true?   

a.It would need a subsidy, if regulated to follow marginal cost pricing.

   b.It should be taxed, if regulated to follow average cost pricing

   c.It would maximize total revenue rather than profits.

   d.It would produce the allocatively efficient output level, to maximize profit.

e. Its marginal cost exceeds its average total cost at all output levels.

3. A firm operating under imperfect competition finds that it can sell only 14 units of its output when the price is $15. The marginal revenue from selling the fifteenth unit is $7.50. If the firm wishes to sell 16 units, the price per unit and the marginal revenue will be which of the following?

  a.Price: Less than $15   - Marginal Revenue:   Less than $7.50

   b.Price:Less than $15  - Marginal Revenue:   Greater than $7.50

   c. Price:Greater than $15 -  Marginal Revenue: Less than $7.50

  d.Price: Greater than $15  - Marginal Revenue: Greater than $7.50

   e.Price: $15    - Marginal Revenue:    $7.50

4. In order to maximize total revenue, a monopolist will  

a. charge the highest price any consumer is willing to pay for that good

   b.produce the output level at which marginal revenue equals marginal cost

   c.produce the output level at which marginal revenue equals zero

   d.produce the output level at which the demand curve intersects the marginal cost curve

  e. produce where average cost is at a minimum38.

5.A profit-maximizing monopolist is currently producing 500 units. Its marginal cost is equal to $10, and its price is equal to $20. The monopolist should  

a. decrease output and increase price if marginal revenue is equal to $5

   b.decrease output and decrease price if marginal revenue is equal to $5

   c.decrease output and increase price if marginal revenue is equal to $15

  d. increase output and increase price if margin revenue is equal to $15

  e. increase output and maintain the current price, if marginal revenue is equal to $15

Explanation / Answer

1) A

Reason:

Govt imposes a maximum price of Pmc resulting in an output of Qmc where P=mc. This will result in subnormal profits

2) D

Reason :

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