If a natural monopoly is forced to follow a policy of average-cost pricing, the monopolist will:
A. earn economic profits greater than zero.
B. charge a higher price than if the monopolist were not regulated.
C. charge a lower price than if the monopolist were not regulated.
D. decrease output below that in an unregulated pricing policy.
Answer: C
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a. True b. False
A perfectly competitive firm will always maximize profits by producing where
a. per-unit costs are lowest. b. total costs and total revenue are equal. c. P = MC. d. P = AC.
Human beings
A) have unlimited wants. B) think they have unlimited wants, but really have limited needs. C) have limited wants, but unlimited needs. D) know what their needs are, but do not know what their wants are.
Suppose duopolists face the market inverse demand curve P = 100 - Q, Q = q1 + q2, and both firms have a constant marginal cost of 10 and no fixed costs. If firm 1 is a Stackelberg leader and firm 2's best response function is q2 = (100 - q1)/2, at the Nash-Stackelberg equilibrium firm 1's profit is
A) 400. B) 650. C) 800. D) 1200.