31) Which of the following is an example of a two-part tariff?

A) price discrimination based on the buyers' willingness to pay

B) charging a hookup fee plus a monthly charge equal to marginal cost

C) higher sales tax on specific products

D) different prices based on the cost of production and quantity bought

E) A regulated firm uses marginal cost pricing for some customers and average cost pricing for other customers.

32) One way a company can cover its costs and, at the same time, obey a marginal cost pricing rule is by

A) choosing output levels according to the profit-maximizing rule.

B) using price discrimination.

C) increasing production.

D) decreasing production.

E) decreasing its marginal cost but not changing its average total cost.

33) If a regulatory agency sets the price equal to marginal cost for a natural monopoly, the

A) government might have to provide a subsidy to the firm to keep it in business.

B) price is the same as the unregulated monopoly price.

C) firm makes an economic profit, though not the maximum economic profit.

D) firm makes the maximum economic profit.

E) firm makes zero economic profit.

34) What problem is caused by subsidizing a natural monopoly regulated using a marginal cost pricing rule?

A) The regulated firm ends up earning an economic profit.

B) Consumers pay too much for the product of the monopoly.

C) This policy is a two-part tariff, which creates inefficiency.

D) The taxes required to gain the revenue used as the subsidy result in a deadweight loss that subtracts from gains in efficiency which result from use of the marginal cost pricing rule.

E) The regulated firm goes out of business if it is subsidized.

35) With a natural monopoly,

A) no regulation is necessary because it is a natural monopoly.

B) regulation takes the form of forcing competition from new firms.

C) regulation takes the form of forcing the company out of business.

D) regulation can take the form of average cost pricing to allow coverage of costs.

E) regulation takes the form of breaking the company into several competing firms.

36) When a firm is regulated so it uses an average cost pricing rule, the price

A) exceeds average total cost.

B) equals marginal cost.

C) is less than marginal cost.

D) equals average total cost.

E) equals marginal revenue.

37) For a natural monopoly to cover its total cost, its price must equal its

A) average total cost.

B) marginal cost.

C) demand.

D) total fixed cost.

E) marginal revenue.

38) When used with a natural monopoly, an average cost pricing rule results in

A) the efficient level of output.

B) economic losses for the firm.

C) the need for government to subsidize the natural monopoly.

D) zero economic profit for the firm.

E) the firm making an economic profit.

39) With an average cost pricing rule, the quantity produced by the natural monopoly is ________ the quantity produced with a marginal cost pricing rule.

A) greater than

B) less than

C) equal to

D) greater than in the long run and less than in the short run than

E) not comparable to

40) A natural monopoly's output is less if it is regulated with

A) a marginal cost pricing rule than if it is unregulated.

B) an average cost pricing rule than if it is unregulated.

C) an average cost pricing rule than if it is regulated with a marginal cost pricing rule.

D) a marginal cost pricing rule than if it is regulated with an average cost pricing rule.

E) More information about the firm's demand is needed to determine how its output depends on what regulation it faces.

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