Question :
21) A marginal cost pricing rule sets marginal cost equal : 1226216
21) A marginal cost pricing rule sets marginal cost equal to
A) minimum average variable cost.
B) price.
C) average cost.
D) marginal revenue.
E) the smaller of price or marginal revenue.
22) For a regulated natural monopoly, the marginal cost pricing rule is a rule that sets price ________ marginal cost and achieves an ________ amount of output.
A) equal to; efficient
B) above; inefficient
C) below; efficient
D) equal to; inefficient
E) above; efficient
23) How should a natural monopoly be regulated under the social interest theory of regulation?
A) by setting price equal to the average cost of production
B) by allowing a price that maximizes the profit of the natural monopoly
C) by using a marginal cost pricing rule
D) by subsidizing other producers to compete with the monopoly
E) by using rate of return regulation
24) The outcome of regulating a natural monopoly using the marginal cost pricing rule is
A) that the firm makes a normal profit.
B) that the firm maximizes its profit.
C) that consumer surplus is less than what it would be if the firm maximized its profit.
D) an efficient level of production.
E) that the firm makes an economic profit.
25) For a natural monopoly, the efficient quantity is produced when the firm is regulated so that
A) P = ATC.
B) P > ATC.
C) P = MC.
D) P > MC.
E) P < MC.
26) If a natural monopoly is regulated using
A) a marginal cost pricing rule, the firm maximizes its profit.
B) an average cost pricing rule, the firm incurs an economic loss.
C) a total cost pricing rule, the firm will exit the industry.
D) a marginal cost pricing rule, the firm incurs an economic loss.
E) an average cost pricing rule, the firm maximizes its profit.
27) Under a marginal cost pricing rule, a natural monopoly
A) makes a reasonable profit.
B) makes an economic profit.
C) earns accounting profits, but breaks even in economic terms.
D) incurs an economic loss.
E) makes a normal profit but it cannot be determined whether or not it makes an accounting profit.
28) A natural monopoly that is regulated to set price equal to marginal cost
A) makes an economic profit.
B) makes zero economic profit.
C) incurs an economic loss.
D) could make an economic loss, an economic profit, or zero economic profit.
E) makes zero normal profit.
29) Which of the following explains why the marginal cost pricing rule results in an economic loss for a natural monopoly?
A) The ATC curve is downward sloping throughout the relevant range, therefore the MC is lower than the ATC.
B) The demand curve is downward sloping, therefore price falls as quantity increases.
C) The MC is constant and equal to price.
D) Because output is determined by setting MC equal to the price, consumer surplus is maximized.
E) The firm's MR is always less than its price.
30) Regulated natural monopolies can obey a marginal cost pricing rule and still make a normal profit by engaging in
A) least cost pricing and average cost pricing.
B) price discrimination and two-part tariff pricing.
C) zero profit pricing.
D) profit-maximizing pricing.
E) None of the above answers is correct because a natural monopoly regulated using a marginal cost pricing rule always incurs an economic loss.
